A lot of small-cap UK stocks have been hammered lately. So there could be some big opportunities in the coming years for those of us who like to take an active approach to investing.
One stock that looks interesting to me right now is Creo Medical (LSE: CREO), which is currently trading for just 35p. According to analysts at Deutsche Bank – who just slapped an 80p price target on it – it has the potential to rise 129% from here.
An innovative healthcare company
Creo Medical’s an innovative medical device company that specialises in instruments for endoscopic (minimally invasive) surgery.
Its flagship product, Speedboat Inject, is a multimodal endoscopic instrument that can be used by surgeons to dissect, cut out, inject, and more when operating on pre-cancer and cancer patients.
Recently, Creo has been having a lot of success with Speedboat Inject. In the first half of 2023, for example, the company saw a 44% increase in its user base from the end of 2022.
However, the group continues to launch new products to diversify its revenue stream. Last year, for instance, it launched Speedboat UltraSlim – a slimmer multi-modal endoscopic device with advanced features.
So far, this product’s been successful in procedures in the UK, USA, Latin America, and Asia to treat pre-cancerous lesions in the colon, oesophagus and stomach.
I can go whatever direction I want with complete rotation and deliver microwave faster. The UltraSlim is a gamechanger.
Feedback from a user of Creo’s Speedboat UltraSlim
Strong growth
Now Creo’s revenues are growing at a healthy rate right now, thanks to its innovative medical devices.
In February, the group announced that revenues for 2023 were likely to be up 13% year on year to £30.8m. This year, City analysts expect revenues to amount to £40.6m. That would equate to growth of 32%.
That’s the kind of numbers I like to see from a smaller company.
Hard to value
The problem from an investment perspective however, is that the company’s quite hard to value because it’s not yet profitable. With no earnings, we can’t get a price-to-earnings (P/E) ratio here.
We can look at the price-to-sales ratio though. Today, the company has a market-cap of about £126m. If it was to achieve the £40.6m sales figure I mentioned above, the price-to-sales ratio would only be 3.1. That’s quite reasonable to my mind, given the growth the company’s expected to generate.
Whether the stock can get to 80p in the medium term though is hard to know. This is likely to depend on revenue forecasts for 2025 and 2026, the outlook for profitability, and sentiment towards small-cap UK shares.
High risk, high reward
It’s worth pointing out that Creo Medical’s a higher-risk stock. There’s no guarantee its products will be successful in the long run. And without profits, the company’s share price is likely to be volatile.
Given the lack of profits, the stock’s a bit too risky for me right now. However, for those with a high tolerance for risk, the stock could be worth considering as a high-risk, high-reward play.
