Is this stock a buy after reporting a 150% increase in revenue?

The Motley Fool
GlaxoSmithKline, Singapore
GlaxoSmithKline, Singapore

Regenerative medical devices company Tissue Regenix(LSE: TRX) has today released an upbeat set of results for the six months to 31 July. They show that the company is making progress with its strategy, but is this enough to merit purchase for long-term investors? There are both pros and cons.


Tissue Regenix's sales of £631,000 in the first half of the year is a 150% increase on the £252,000 sales recorded in the first half of the prior year. This was mainly due to its continued focus on adoption and advocacy, which was rewarded with further Medicare approvals. This strategy also delivered Tissue Regenix's first group Purchasing Order agreement, which is a significant step to enable the continued success of its DermaPure brand.

The agreement also highlights the growing commercial traction that Tissue Regenix has in the US wound care market. This is a competitive space, but the company has been able to make gains in this arena.

Tissue Regenix has also made progress with its European market entry. It expects to be in a position to launch its first orthopaedic product, OrthoPure XT, in the first half of 2017. The CE mark is due to be made around six months ahead of plan.

Lower risk

Tissue Regenix remains on track to meet its year-end targets. However, despite a major rise in revenue, it's forecast to remain lossmaking in both the current year and next year. This could cause many investors to be put off despite its long-term growth potential. As such, investing in a highly profitable and lower risk healthcare stock such as GlaxoSmithKline(LSE: GSK) may prove to be a better move.

After all, GlaxoSmithKline offers a potent mix of income, value and growth potential. For example, it currently yields 4.7% from a dividend that's forecast to be covered 1.3 times in the next financial year. This shows that there's scope for brisk dividend gains over the medium term. Similarly, GlaxoSmithKline's valuation could increase thanks to an upward rerating. It currently trades on a price-to-earnings (P/E) ratio of 17.8. Given its low positive correlation with the wider economy and relatively low risk profile, this rating could increase as investors seek out more defensive stocks in the post-Brexit vote world in which we now live.

Looking ahead, GlaxoSmithKline is forecast to grow its bottom line by 27% this year and by a further 7% next year. This could positively catalyse investor sentiment in the stock. And beyond 2017, the firm's pipeline has the potential to boost earnings yet further. In particular, its ViiV Healthcare division holds great promise, while its consumer goods business could benefit from rising demand for consumables across the emerging world.

While Tissue Regenix is performing well and making progress, its risk/reward ratio is inferior to that of GlaxoSmithKline. Therefore, the latter is the better buy right now.

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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.