Hospital Infection prevention products maker Tristel (LSE: TSTL) is a FTSE AIM company that may be about to crack the market in North America.
With the share price near 418p, the market capitalisation is around £187m. And if the small size doesn’t put off some investors, the valuation may.
A punchy valuation
City analysts expect earnings to increase by about 25% during the current trading year to June 2024. And set against that estimate, the forward-looking earnings multiple is a 35, or so.
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There’s risk in that high-looking level of rating, for sure. But Tristel had been waiting for a decision from The United States Food and Drug Administration (FDA) regarding product approval for the American market.
That anticipation had been building on the back of a multi-year period of strong growth for the business. And breaking into the American market could launch a period of further strength.
So the company’s trading record and ongoing potential have likely combined to drive up the valuation over time. But that may not matter much if the business can establish fast-growing sales in the US.
Launching in the US
The good news is that in September 2022, Tristel announced the launch of its DUO disinfecting foam product into the North American Market.
The product had been approved by the USA Environmental Protection Agency (EPA) for the cleaning and disinfection of general medical surfaces. But, at the time, chief executive Paul Swinney said: “Our opportunities will expand enormously with an accompanying FDA approval.”
Then in June, Tristel announced FDA approval for its ULT product — a high level disinfectant for use on endocavity ultrasound probes and skin surface transducers.
Swinney said the FDA approval enables “full-blown” entry into the United States ultrasound market. And it’s a “significant inflection point for the company”.
Tristel now expects to gain market share in the world’s largest ultrasound market. And Swinney reckons the approval will allow the business to increase its global revenue and profit potential as it drives growth in ULT and DUO in the US.
Robust full-year results
On 16 October, the company released a robust set of full-year figures. And they show strong revenue growth from continuing products “well ahead” of internal growth targets.
For the trading year to 30 June, FDA approval for ULT was one of the major operational highlights. But there was also regulatory approval in Canada for OPH – a high-level disinfectant for ophthalmic devices.
On top of that, the directors expect to secure the majority of UK and European regulatory approvals in the fourth quarter of the trading year to June 2024. And there’s an “exciting” pipeline of new product innovations.
Looking ahead, Swinney said Tristel will be able to leverage the significance of the FDA approval in countries that look to the US regulator for their own practice. Meanwhile, the business has commenced manufacture and shipped products to its first customers in the US.
Swinney thinks the outlook is the strongest in the company’s 30-year history. And despite the valuation risk, I think the stock is worth careful consideration now as a potential long-term growth position in a diversified portfolio.
