Searching for confirmation on the merits of small-cap investing? Look no further than infection prevention product manufacturer Tristel(LSE: TSTL). Over the last five years, the price of its stock has more than seven-bagged. While many would consider this kind of return to be more than sufficient, today's full-year results suggest there's still considerable upside ahead.
Revenue climbed 19% to just over £20m in the year to the end of June, with pre-tax profit coming in 24% higher at £4.1m. According to CEO Paul Swinney, these numbers exceeded both market and management expectations.
Much of today's good news can be attributed to the company's strong performance overseas. Having soared 43% to £9.6m over the reporting period, international sales now represent almost half of the Snailwell-based small-cap's total revenue. While a proportion of growth can be explained by favourable currency movements, Tristel's decision to acquire its Australian distributor has clearly done no harm at all to its top line.
Given that the company is now on the cusp of making huge strides in the North American market, having recently made its first regulatory submission, I think there could be a lot more good news coming for holders in 2018. While some investors were clearly disappointed by the recent announcement that there would be a delay to the approval timetable, Tristel's management remain unfazed with first sales still expected in the next financial year. This, combined with recent investment in Mobile ODT (which connects point-of-care diagnostic devices to smart phones), not to mention the company's net cash position (£5.1m) and lack of debt, make me very bullish on the £126m cap's future.
So, no downsides? Not quite. The huge potential for increasing sales of the company's chlorine dioxide formulation means that Tristel's shares are now very expensive to buy and, some would say, priced to perfection. Based on earnings per share of 8.06p over the last year, the company's stock has a trailing price-to-earnings ratio of 35. Whether that's a price worth paying is up to you.
Multibagger in the making?
Tristel isn't the only small-cap stock with a very promising outlook. Another company that's caught my attention recently has been specialist drug discovery and development business ImmuPharma(LSE: IMM). Based on recent share price performance, it seems I'm not alone. Shares have pretty much doubled from the 50p mark reached one month ago as expectations continue to build surrounding Lupozor -- the company's key drug designed to tackle Lupus, the potentially life-threatening auto-immune disease. With all patients having passed through the six-month stage of testing, it now expects to report top-line results from its Phase III trial in Q1 2018. The fact that the company has already begun to prepare regulatory submissions suggests that management is already confident of a successful outcome.
Aside from this, interim results in late September revealed the company's finances to be in good order with net assets of £6.4m by the end of the reporting period. While this continues to be a lossmaking business, research and development expenses are slowly reducing and the £4.1m fundraising in March should give the £129m cap more than enough cash to play with going forward.
A riskier play than Tristel? Sure. Nevertheless, if results from the aforementioned trial go the company's way, the recent increase in ImmuPharma's valuation could be just the beginning.
Eager for more?
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.