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I think this UK small-cap stock is just getting started

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I’ve come across a UK small-cap stock, Sensyne Health  (LSE: SENS) and reckon it has lots of potential. The shares have been rising on the back on recent positive news. 

I think the company is just getting started and I’d buy the stock in my portfolio. Here’s why.

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Sensyne Health: what does it do?

In a nutshell, Sensyne Health is an AIM-listed healthcare company that uses artificial intelligence to analyse data. The company operates two divisions — Discovery Sciences and Software Products.

I’ll explain each of these businesses in turn.

Discovery Sciences

I should highlight that over 80% of revenue is generated from the Discovery Sciences division. This is where it analyses anonymised patient data from NHS trusts using machine learning (a subset of artificial intelligence). So I like the stock because the analysis can be used to improve pharmaceutical development, increase the understanding of diseases and advance clinical design trials.

One reason I’m excited about this UK small-cap stock is that this division bridges the gap between the NHS and the pharmaceutical industry. The NHS has been busy converting its paper files into digital records. And in my opinion, the NHS has the data but has limited resources to analyse it. Pharmaceutical companies are likely to welcome a company that has already done the number crunching and can offer both scientific value and a financial return.

Software Products

While the Software Products business is small, I think it has huge growth potential. Sensyne Health develops digital health products that help clinicians with patient care. These digital products also generate data, which the company can use for research.

I think division is a key growth driver. Some of Sensyne Health’s products enable clinicians to remotely monitor and manage diabetes and blood pressure during pregnancy. I reckon if this is successful, these products could be rolled out to the wider patient community, thereby increasing revenue potential.

I also like that the firm is collecting data from its products. This means that it’ll be able to analyse it and sell the scientific value it creates to pharmaceutical companies.

The risks

While I feel this small-cap stock has lots of potential, there are still risks involved. Sensyne Health is generating revenue but is loss-making. It’s using cash for research and development of its products, which for now is eating into its profitability.

I think this is likely to continue for the foreseeable future and may impact Sensyne Health shares.

There’s also no guarantee its products will be successful. And any delays or negative news are likely to hit the stock price.

Recent developments

There’s been a recent flurry of positive news that has lifted the shares though. Sensyne Health has signed an exclusive license with Excalibur Healthcare Services. It will use its MagnifEye software product with Excalibur’s rapid diagnostic tests, which includes its Covid-19 antigen test. To me there’s growth potential for Sensyne because the test has been approved by the UK regulator for mass population screening in symptomatic and asymptomatic people.

The firm also announced that its SYNE-COV machine learning algorithm for Covid risk prediction has achieved regulatory approval in the UK. I think this is a milestone for the company. I’d buy the stock and reckon things are only getting started for Sensyne Health.

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Nadia Yaqub has no position in any of the shares 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.

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