If we define a penny stock as a company with a market cap under £100m and a share price below £1, then Creo Medical (LSE: CREO) only half qualifies. Its priced at 34p per share but its market cap is £125m.
Hence my use of the term ‘ex-penny stock’ here.
I first invested in Creo back in late 2022, but I’ve been buying more shares lately. Here’s why.
Novel medical devices
For those unfamiliar, the company develops innovative electrosurgical devices for minimally invasive surgery, specifically in the field of gastrointestinal endoscopy.
Now, that’s a lot of jargon! But it basically means Creo makes instruments used for surgeries performed through small tubes with cameras (endoscopes) inserted into the digestive system.
The firm’s flagship product, Speedboat, is a versatile device. Attached to an endoscope, it allows doctors to remove or destroy pre-cancerous growths in the digestive tract.
Speedboat can dissect, resect, and coagulate (clot), eliminating the need for surgeons to frequently change instruments.
Moreover, it can deliver both advanced bipolar and microwave energy, which offers advantages to patients over traditional techniques.
The device leads to more efficient procedures, fewer complications, and faster patient recovery times.
Saving healthcare systems money
In April, the company released data that demonstrated substantial cash savings from Speedboat for certain bowel procedures when compared against similar surgical alternatives.
From 130 such patient procedures undertaken at East Kent University Hospitals Foundation Trust, the data confirmed:
- an 87% reduction in the average patient length of stay from 8.39 days to 1.07 days
- 99% reduction in critical care costs
- 91% reduction in accommodation costs per patient from £3,400 to £300
Over a one‐year period, it said costs were reduced from £8,800 to £3,600. And the net cash savings from just these 130 patient procedures was £687,000 for this single NHS Trust.
This case study will be shared with the Department of Health and Social Care and financial decision makers at NHS Trusts to illustrate the impact that Creo’s Speedboat technology can have.
I reckon there’s a good chance that the firm’s devices gain significant commercial traction across the NHS.
Scaling up
Now for the bad bit. Creo is currently loss-making as it invests heavily in its future growth and market position.
Last year, the firm is expected to have lost around £17.5m on revenue of approximately £31m. That would represent top-line growth of 13% year on year.
We’ll find out on 15 May when the company reports its 2023 financial results. But losses are expected until at least 2026, which adds risk.
The good news is that analysts currently expect revenue to accelerate 30% in 2024 to around £40.9m. This will be due to more surgeons around the world being trained to use its suite of electrosurgical devices.
Last year, the total number of Speedboat users rose to 175, representing a 120% increase. More users means more recurring revenue from the sale of the consumables needed to operate the devices.
Creo is currently trading on a price-to-sales multiple of 4.3, which isn’t an outrageous valuation for a growth stock.
The firm’s products are a win-win for both hospitals and patients. And I’m backing the stock to be a winner for patient long-term investors too.
