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Can Zytronic plc Beat AstraZeneca plc In 2016?

Judging by yesterday’s full-year results release, Zytronic (LSE: ZYT) is trading well.

Compared to a year ago, revenue is up 13%, pre-tax profit up 39% and net cash from operations up around 17%. The directors marked this achievement by pumping up the dividend by 20% — nice!

On a roll

The British manufacturer makes interactive touch sensor products for things such as automatic transaction machines (ATMs), bill payment and financial information kiosks, vending machines and other commercial or industrial applications where humans interact with machines.

Although based and manufacturing from three modern factories in Blaydon upon Tyne in the UK, most of Zytronic’s production ships abroad — isn’t that wonderful! The firm works hard to improve its regional routes to market and established a technical support hub in the US in 2014. Now with eyes on the Greater China Region, Zytronic plans to set up what it calls a business- development and sales-opportunity-generation hub somewhere in Asia.

Such moves encourage me to believe that the firm has great potential for further growth from here.

The company’s recent financial record is good:

Year to September

2013

2014

2015

Revenue (£m)

17.28

18.89

21.27

Pre-tax profit (£m)

1.94

3.26

4.54

Net cash from operations (£m)

3.27

4.18

4.86

Rising revenue is generating a healthy percentage of profit and it is all backed up with solid cash flow from operations. During 2015, Zytronic further bolstered its already-strong balance sheet by adding £2 million to its cash reserves.

Valuation

Today’s 415p share price puts the firm on a forward price-to-earnings (P/E) multiple of just over 16 for 2016. The forward dividend yield comes in at 2.9%, and City analysts following the firm expect forward earnings to grow 3% that year and to cover the payout more than twice.

That valuation does look up with events, but the long-term potential for Zytronic is attractive. The firm deserves a place on my watch list, and any share-price weakness from here could be an opportunity to buy better value.

Building potential

Pitching Zytronic against AstraZeneca (LSE: AZN) makes it difficult to predict which of the two firms will do better for investors during 2016. AstraZeneca’s development pipeline is a potential powerhouse for new best-selling drugs and could hit the jackpot at any time. On top of that, the pharmaceutical giant operates an acquisition strategy that serves to reassure me that the firm remains serious about growth.

At today’s 4440p share price, AstraZeneca trades on a forward P/E rating of just under 17 for 2016 and there is a dividend yield of around 4.4% for investors to collect while waiting for any future growth spurt to kick in.

On balance, both Zytronic and AstraZeneca ooze with longer-term potential and maybe both would sit well in a portfolio with a five-year-plus investment horizon. That’s why I’m keeping an eye on both firms and may hit the ‘buy’ button on any temporary setback that knocks either firm’s share price.

Both firms are tempting, but I also like the look of a mid-cap firm enjoying strong growth that looks set to continue.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.