Creo Medical (LSE: CREO) has been a disappointing penny stock recently. It’s slumped 57% in 2024 and now trades for 19p. For context, it was going for 215p back in 2021.
One key issue for the medical device company lately has been a need to shore up its balance sheet to fund its growth opportunities. It recently raised £12m through a share placement priced at 24p.
I started buying this stock at around 42p a while back, then doubled down at a price of 28p in the summer. So I’m well down by now.
However, I note insiders have been taking up the offer of new shares. I didn’t join them. But should I buy more at 19p? Here are my thoughts.
Skin in the game
On 21 October, Creo’s non-executive chairman Kevin Crofton acquired 2,916,666 shares at a price of 24p each. This transaction totalled approximately £700k.
At the same time, chief financial officer Richard Rees snapped up nearly £50k worth of shares.
It’s always good to see insiders purchasing shares. As Wall Street legend Peter Lynch once pointed out: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
Of course, that doesn’t mean the share price will rise. It’s on a worrying downwards trajectory.
What is Creo anyway?
For those unfamiliar, the firm develops minimally invasive electrosurgical devices. Its flagship Speedboat product, powered by proprietary energy technology, combines radiofrequency cutting with microwave coagulation.
Put simply, this helps surgeons remove cancer and pre-cancer more effectively from the lower gastro-intestinal tract before it spreads. The firm’s MicroBlate tool is focused on treatments for various cancers.
According to data collected from over 130 patients, Creo’s technology saved East Kent Hospitals University NHS Trust over £5,000 per procedure undertaken. And it provided a 91% reduction in accommodation costs per patient.
So there is great growth potential for the company as hospitals around the world (hopefully) adopt these cutting-edge devices. But it won’t happen overnight as doctors need to be trained to use them.
Growing pains
The firm recently released a disappointing set of interim results. Revenue of £15.2m was down from £15.7m the year before, meaning zero growth. And the underlying EBITDA loss increased to £10.5m, from a loss of £9.2m in H1 2023.
Creo initially projected reaching EBITDA breakeven by 2026, but that target has now been pushed back to 2028. So the company is to remain loss-making for longer than originally planned, which is a key risk here.
On the positive side, the company should be well-capitalised after selling a 51% stake in its European business. Combined with the share placement, this will give the firm around £40m.
Management says this will make Creo “sufficiently well-funded to reach profitability“.
Will I buy more shares?
The company has exciting growth potential. Its MicroBlate technology is currently in trials with Intuitive Surgical‘s Ion robot for lung cancer treatment. This combination would enable clinicians to diagnose and treat tumours in the same procedure.
However, I found the sudden lack of revenue growth in H1 a bit worrying. Consumable sales fell by 6%. Until I’m more confident in the growth trajectory again, I’m not adding to my holding, even at 19p.
