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This promising small-cap growth company could crack America!

You need to look no further for a dream small-cap investment than Tristel (LSE: TSTL). The firm manufactures infection prevention and contamination control products using chlorine dioxide chemistry and business has been growing nicely.

Revenue is up around 142% over the past five years and normalised earnings have shot the lights out, rising more than 2,000%. There’s been robust cash inflow over the period, which has given solid support to profits and enabled a rise in the dividend of about 1,225%. The figures prove the firm’s growth has been worthwhile and profitable, and investors have been rewarded with a rise in the share price of about 1,400%. Could we really ask any more of a small-cap investment?

More great results

There’s more good news in today’s half-year results report. Revenue is up 12% compared to the equivalent period last year and much of the advance reflects progress abroad. Overseas sales increased by 19% and now make up 53% of total sales. Earnings per share lifted 13% and the directors expressed confidence in the outlook by raising the interim dividend by a whopping 28%.

In November, Tristel acquired the Ecomed Group, which it is integrating into operations now. We’ll get a better idea of how the new addition is contributing to profits with the full-year report in around six-months’ time.

Other highlights include receiving a couple of US Environmental Protection Agency (EPA) approvals, which are part of a long-running effort to get all the regulatory approvals in place before attempting to break into the US market. And, interestingly, the company transferred the responsibility for CE marking of its medical device products from BSI UK to BSI Amsterdam “to mitigate Brexit-related risks,” and also set up a warehouse hub in Antwerp. But the firm seems to have some confidence in the looming post-Brexit environment because it also leased a new warehouse in Newmarket.

Brexit-ready and poised to grow

Chief executive Paul Swinney said in the report the company had executed the best plan it can to “mitigate the potential effects of a no-deal Brexit.”  Indeed, he owned up to looking forward with “a high degree of confidence.” And City analysts following the firm seem optimistic too, predicting double-digit percentage advances in earnings for the full year and the following year to June 2020.

I’m bullish on the firm too. I think the company has decent financial quality indicators with the return-on-capital figure running close to 21% and operating margin at almost 18%. The management seems to be well-motivated and executing well. If all the ongoing regulatory hurdles can be negotiated without breaking the firm’s bank account and within a reasonable time frame, we could see another explosion in growth if Tristel can crack the US market.

But the valuation looks full, which reflects all the operational success so far. At today’s share price close to 290p, the forward-looking price-to-earnings (P/E) ratio is sitting around 24 for the trading year to June 2020. Meanwhile, the share-price chart shows consolidation since August 2017. I’m not against high-looking P/E ratios as long as a company keeps on delivering decent growth, and I think the US opportunity looks exciting with Tristel. 

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.