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Investing in penny stocks is not for the risk averse. They are usually sensitive to any market news and there is little liquidity. This means that they can be extremely volatile, with sudden movements in one direction or another. On the other hand, finding the right penny stocks can be a very rewarding activity.
Here’s why I think this small-cap has upside potential at 27p.
volatile stocks
i think medical (LSE: I THINK) Stocks epitomize volatility. After going public at 77 pence in 2016, the stock doubled in two years. It then went up and down for three years, before sinking as low as 18 pence. The shares are now at 27 pence, having risen 42% last month.
The stock lost more than 80% of its value in 2022. The reason was the fear of declining cash reserves of the company. However, last month the company announced that an oversubscribed fundraiser had generated £28.5m. And there is the possibility of an additional £5.2 million from an open share offer.
Craig Gulliford, CEO of Creo, said: “This funding round will not only provide us with the working capital to accelerate the deployment of our core technology, but will also fill the funding gap to provide us with a path to breakeven cash flow and ultimately to cost effectiveness..”
This fresh injection of capital into the business has now removed liquidity concerns. Instead, investors can focus on the market opportunity ahead, which I think is substantial.
cutting edge technology
The company has developed a suite of minimally invasive electrosurgical devices. Its six products are CE marked and five are also authorized for use in the US.
Its flagship product is called Speedboat. This device can be attached to an endoscope to cut or vaporize precancerous growths in the digestive tract before they spread. Endoscopes are typically used for research rather than treatment, so this innovation benefits patients and ultimately saves healthcare systems money.
Creo devices are powered by an advanced power platform called CROMA. Importantly, the company has begun to license this proprietary technology to other companies, including the global robotics giant. intuitive surgical. The company has already received its first revenue from this non-exclusive license agreement (around £1.4 million) and expects additional milestone payments as well as increased revenue from device sales.
These intellectual property agreements with Intuitive are a great endorsement of Creo’s technology, and the company expects to announce more such license agreements in the future.
The action
Analysts expect the company to post £27 million in sales by fiscal 2022. That’s basically nothing in fiscal 2019, when its devices first started generating revenue. But the company is still making losses, and the risk is that it will continue to be so. At the very least, it will need to significantly increase sales next year to justify its current £56m market cap.
However, the price-to-sales (P/S) ratio for the two stock doesn’t seem too demanding. And with cash no longer an issue, most analysts believe the company has a clear path to generating cash by 2025.
Overall, I think the stock has immense long-term potential. That’s why I recently reloaded my share.
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