Is Nanoco Group plc a small-cap growth stock to buy after soaring 50% today?
Back in October, my Foolish colleague Rupert Hargreaves reckoned that the future for Nanoco Group(LSE: NANO) hinged on its ability to sign up new customers. That's really the only way for investors to tell if its technology is all it's cracked up to be.
The share price had slumped at the time, and by market close Wednesday we'd seen a fall of more than 60% since a peak in July 2017.
But Thursday saw a 50% spike, with the price reaching 36.5p in morning trading, after the company revealed it has signed a supply and development agreement with an as-yet-undisclosed US company.
Nanoco said the deal means it "will scale-up and mass-produce novel nano-particles for advanced electronic devices and supply them from its state-of-the-art production facility in Runcorn, UK."
Expanding the Runcorn facility to cope with the quantity of materials needed will require capital expenditure, and the contract partner will contribute.
These are obviously still early days, but with commercial supply expected to begin in early 2019, it's looking like a serious stream of cash really might not be too far in the future now. Liquidity was always going to be a key issue as it is with any 'blue sky' growth company -- even if it's successful, early investors can still be diluted out, depending on how much cash needs to be raised to reach profitability.
Some of that worry has now been lifted, especially as today's news comes on the back of a couple of earlier agreements.
With Nanoco having net cash of £5.7m at 31 July 2017, and a placing having raised an additional £8m late last year, I'm cautiously optimistic.
The cloud-based technologist reported a 10.9% rise in total sales for the year.
Checkit, which "continues to make progress with its real-time operations management product suite," brought in a 66.7% rise in sales. That is the firm's smallest unit, though, with just £0.5m in sales, but Elektron's biggest business seems to be performing solidly too -- sales of £27.3m from the Bulgin arm amounted to a 13.3% rise.
The only sales downside came from IMC, with a 12.9% fall to £2.7m.
Orders received during the year amounted to £33.1m, up 17.8%. Net cash rose from £1m at 31 January 2017 to £5.1m a year later, though that does include £1.9m from the disposal of Sheen Instruments, Digitron and Titman Tip Tools.
Should we buy?
Elektron told us its order book for the new financial year currently stands at more than £9m, which looks like a healthy start. And its disposals, it says, enable it to "focus solely on the businesses which the board believes offer greatest potential for growth."
The problem is, it's difficult to value the shares right now, as the company appears to be just on the point of turning a profit. Results for the first half showed an operating profit of £0.1m (from a loss of £1m a year previously), and positive EPS of 0.1p (from a loss of 0.6p).
I'd want to see full-year results, and maybe one more year's worth, in order to put some meaningful fundamentals together. For now I'm on the fence.
Balancing the risk
With no full-year profit yet, these two clearly carry some risk. One possible investing approach is to offset that with a safer growth stock at a more sustainable price level.
The company selected in our Top Growth Share From The Motley Fool report has already provided handsome rewards, our analysts think it has a lot more to give, and it looks a safe pick to me.
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Alan Oscroft 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.