Today’s trading update from promising small-cap growth share Tristel (LSE: TSTL) hammered the price. As I write, the stock changes hands around 12% lower, at 409p. Is this a buying opportunity?
Meanwhile, it’s no secret in the investing community that Tristel has so far been a huge success story, both operationally and for its shareholders. Indeed, sales of the firm’s infection prevention and contamination control products have soared. And that’s driven some impressive numbers. For example, over the past five years, revenue has grown by almost 100%, earnings have increased by around 125%, and cash flow is about 120% higher.
A well-balanced growth share
That looks like well-balanced growth underlined by the fact that the company carries zero debt. And the directors have transferred some of that success to shareholders. The dividend is up around 124% since 2015. But the biggest boost to shareholder returns has arrived via the share price. Even after today’s decline, it’s still about 330% up over five years.
And I think that rocketing share price may be one reason for the stock’s weakness today. As well as operational progress, the share’s uptrend was driven by a valuation re-rating. Indeed, the forward-looking earnings multiple for the current trading year to June 2021 sits near 33. Compared to growth forecasts that rating looks well up with events, to me.
Meanwhile, today’s update was encouraging in many ways. It covers the full trading year to 30 June. And like many businesses, Tristel was affected by the arrival of the coronavirus pandemic.
Medical device decontamination products generated 80% of global sales in the eight-month period to 28 February. But sales eased off when Covid-19 hit because hospitals worldwide postponed most patient appointments so they could cope with the pandemic.
Meanwhile, until February, hospital surface disinfection products produced around 9% of sales for Tristel. But sales in this area surged when hospitals stepped up cleaning to combat Covid-19.
Overall, the outcome was good for the business. COVID-19 caused a temporary reduction of £0.5m in medical device decontamination product sales. But that was offset by a £2m increase in sales of hospital surface disinfection products.
Ahead of market expectations
The directors reckon the financial outcome for the year has come in “ahead of market expectations.” Turnover is up around 21% compared to the prior year, and adjusted pre-tax profit is around 21% higher also.
Looking ahead, chief executive Paul Swinney reckons the higher sales momentum of the past four months will only continue if hospitals can return to pre-Covid-19 levels of patient throughput. And if they maintain the intensity of their cleaning and disinfection routines.
However, the directors think the UK “might lag behind” other markets when it comes to building up patient throughput. And that’s significant because it represents around 35% of the company’s global medical device decontamination sales.
Nevertheless, the directors are “cautiously optimistic” for the current financial year and beyond. I reckon today’s down-move in the stock is rational and blows off some of the froth from the valuation. And I’d be looking to buy the shares on dips and down-days because of the ongoing international growth story.
