Interest rates and price inflation have been influencing the UK stock market lately. When they were rising, British shares struggled to make progress. In many cases, they dropped like a stone!
Meanwhile, the recent strength in the stock market arose when the rate of inflation started falling again. It looks like the Bank of England’s base interest rate might have peaked and could soon be on the way down.
I reckon the situation’s positive for UK stocks in general and we may see good progress from shares through 2024.
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A benign economic backdrop?
The Office for National Statistics (ONS) said consumer price inflation including owner occupiers’ housing costs (CPIH) rose 4.2% in the 12 months to January. That’s the same rate as in December 2023.
I’m encouraged to believe the worst might be over and things may continue to improve as we move through the year.
To me, it looks like the economic backdrop is becoming more benign. So I’m researching and buying shares in some UK companies right now. There’s a good chance we could see decent stock market conditions ahead and a steady bull market.
One company that attracts me is Tristel (LSE: TSTL). It makes global infection prevention products using unique proprietary chlorine dioxide (ClO2) chemistry.
The firm describes itself as a market leader in manual decontamination of medical devices. It supplies hospitals with the Tristel brand and provides products for sporicidal surface disinfection with its Cache brand.
The business has been growing well. City analysts expect earnings to increase by around 35% in the current trading year to June and by 25% next year. I’d describe Tristel as a growth stock based on those figures.
Targeting growth in the US
Meanwhile, it has a valuation to match that description. With the share price in the ballpark of 450p, the forward-looking price-to-earnings (PER) rating is a lofty 28. For comparison, that compares to a median rolling PER for all companies in the FTSE AIM All Share index running just below 12.
There’s some risk for shareholders in Tristel’s elevated rating, especially if a competitor business takes market share in the future. But the business has done well expanding in the UK and Europe. Now, it looks set to roll out operations in North America and has recently received important regulatory approvals there.
There’s no guarantee Tristel can achieve the kind of success across the pond that it has in the UK. But if it does, the market is much larger. Earnings could increase considerably, and today’s valuation may end up looking cheap.
Meanwhile, the stock is well down from its highs of 2021:
There’s a strong balance sheet here, and a dividend yielding just above 2.5% to collect while waiting for further growth to happen.
Despite the risks, I’m keen to carry out deeper research with a view to buying a few of the shares. Potentially robust operational performance from the business and a buoyant stock market could work well together in the coming months.
