1 small-cap stock with a 3.1% yield to consider for a Stocks and Shares ISA

Our writer highlights an interesting little British stock that might well warrant a place in his Stocks and Shares ISA portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buying quality small-cap stocks while they’re still flying under the radar can produce very nice returns. One little-known share I’ve been eyeing up for my Stocks and Shares ISA is Tristel (LSE: TSTL).

This company has a market cap of just £202m. Here’s why I’m interested.

Infection prevention

Tristel is a medical disinfectant specialist whose products can be found in hospitals, clinics and other healthcare settings.

The firm has two main product lines. It makes surface disinfectant products and manual disinfectant wipes and solutions for medical devices.

Both use its proprietary chlorine dioxide (ClO2) chemistry. It says: “We are unique worldwide in using ClO2 as a high-performance disinfectant.”

ClO2 is effective against a wide range of pathogens, including bacteria, viruses, and fungi. This makes it a versatile disinfectant solution.

Strong growth

Revenue has grown from £22.2m in 2018 to £36m in 2023. For fiscal 2024 (which ends in June), the firm is forecast to post £41m in revenue.

Looking ahead, analysts see it doubling its top line over the next five years. So there are strong growth expectations here, which I like.

What’s more, the company is expected to report a net profit of £6.7m for this financial year, a 32% year-on-year rise. And profits are tipped to grow steadily in future too.

The firm’s operating margin is a healthy 15%, while it had a cash position of £10.8m at the end of 2023.

There’s even a dividend yielding 3.1%, though cover looks thin at just 1.1 times earnings. That is, the earnings per share only just covers the dividend per share.

Share price performance

Reflecting its progress, the stock is up a whopping 483% over the past 10 years. However, it’s down 37% since reaching a peak in 2021.

It took a dive back then as the pandemic delayed many operations, reducing the need for medical device disinfectants (which make up the bulk of Tristel’s sales).

Since then, higher interest rates have put pressure on small-cap stocks. So the shares are yet to fully recover, despite the actual business continuing to grow.

Big growth potential

While the NHS is Tristel’s largest customer, it also sells its products directly into 14 other countries.

Of these, the vast US healthcare market holds the greatest promise. Ultrasound is the firm’s biggest segment globally, and in 2023 it launched Tristel ULT — a disinfection product used on ultrasound units — in the US.

This has also been cleared by regulators in Canada, while other products are being submitted to US regulators. 

What I like here is that Tristel is already a global leader in manual high-level disinfection of medical devices. There are 50m ultrasound scans in North America requiring high-level disinfection annually, but not all probes fit into the cleaning machines.

The firm sees this translating into a $100m per year revenue opportunity for itself and its US manufacturing partner.

Watchlist stock

The only bugbear I have here is valuation. The stock is trading at 30 times forecast earnings. There could be risk investing at this level if US sales don’t grow as strongly as anticipated.

Still, if the market is right about the firm doubling revenue in the next five years, the stock could surge much higher. It’s near the top of my watchlist.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Tristel Plc. 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.

More on Investing Articles

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »