It’s been a difficult two years for Creo Medical Group (LSE:CREO) shareholders. The company now trades as a penny stock with a share price below 25p and a market capitalisation under £87m. But some unlucky investors will have bought shares when they were trading above £2 not so long ago.
Creo Medical is a healthcare device developer with a focus on minimally invasive surgical endoscopy. Despite recent troubles, I think the AIM-listed firm looks poised for a big turnaround after a successful fundraising.
Here’s my take on the outlook for this beaten-down stock.
Positioned for a rebound?
Following two share offerings, Creo Medical announced it has raised over £33m this month, exceeding its original target by over £3m. This provides much-needed momentum to the business and it’s an important step in the company’s journey toward positive cash flow and — hopefully — profitability.
After all, one of the primary reasons behind the substantial fall in the Creo Medical share price was concern around the firm’s dwindling cash reserves. The recent boost to the company’s coffers should help in soothing investors’ concerns.
Creo Medical’s longstanding strategy of developing its intellectual property portfolio is beginning to pay off. In its latest trading update, the company confirmed it’s generating revenues from licensing its Kampative electrosurgical medical devices for the first time.
Total sales for its core product offering increased eightfold in FY22 versus FY21, from £0.3m to £2.3m. Looking ahead, the group believes it’s on track for EBITDA break-even during FY25.
Product innovation
The company is innovative and launched an upgraded version of its flagship Speedboat Inject product in November 2022. This is a multimodal instrument designed for flexible endoscopy. The product offers the ability to dissect, resect, coagulate, and inject in a single device.
In addition, a multi-site clinical study is under way to evaluate the safety and feasibility of the firm’s MicroBlate Flex technology for the treatment of lung lesions.
This bronchoscopic microwave ablation device shows considerable promise. The market Creo Medical is targeting is enormous. After all, lung cancer is one of the most common and serious types of cancer. The technology potentially offers a less invasive way to treat lung tumours than chemotherapy or radiation therapy.
In essence, this stock has vast growth potential. The latest cash injection boosts the company’s capacity to continue developing ground-breaking technologies.
Risks
That said, Creo is a riskier investment than established healthcare companies with long histories of profitability. I’m optimistic about its growth prospects, but speculation about future profits isn’t the same as concrete results.
In short, the possibility of further downside shouldn’t be ignored. The share price is no stranger to volatility and any disappointing news regarding financial results or underwhelming findings from clinical trials could send the stock into another tailspin.
Should I buy?
Creo has a unique offering that could allow it to generate significant sales in huge markets. What’s more, I feel the share price looks like a bargain today after a considerable decline.
However, there are notable risks. Accordingly, if I had some spare cash, I’d enter a small position now to capitalise on the upside potential while remaining cautious that there could be further challenges ahead.
