One stock I’d snap up and one I’d avoid in this market turmoil

Dice engraved with the words buy and sell

There’s a lot to like about Tristel (LSE: TSTL), the manufacturer of infection prevention and contamination control products. And the full-year results this week show that the business has been doing well.

Revenue increased 10% compared to last year, and adjusted earnings per share rose 10% after removing the effect of share-based payments. However, with those payments put back in, the basic earnings-per-share figure actually fell by 5%. Nevertheless, the directors pushed up the ordinary total dividend for the year by almost 14%, although there was no repeat of last year’s special dividend.

Aiming for expansion in America

Revenue from overseas accounted for 51% of the total, up from 47% last year, and I reckon one of the drivers of what’s been a high-looking valuation has been speculation about the firm’s prospects in North America. Chief executive Paul Swinney said in the report: “Our plans to enter the United States market remain on track and continue to progress well.”

However, he also told us that although the driver of revenue growth was the firm’s overseas activity, overall, “sales growth was at the lower end of our target range.” He also told us the uncertainties about the Brexit process have prompted the company to build up its inventory of all component parts and finished products. Tristel also advised its customers in Europe to increase their stock holdings over the coming months “in preparation for possible disruption to the supply chain.”

Despite the warnings, the directors believe Tristel will be able to sell its disinfectants in Europe, whatever the outcome of the Brexit negotiation. But Swinney is certain that turbulence in the year ahead will disrupt the normal predictable pattern of trade. Meanwhile, the company is pursuing the relevant regulatory approvals to trade in the US, and the longer-term outlook is “very positive.”

There was enough in the report to knock the froth off the valuation, though, and the share price is down almost 25% since its early October peak – and plummeting. Prior to the fall, we were looking at a racy forward price-to-earnings (P/E) ratio in the mid-thirties. Today, in this volatile market, I’d avoid shares in Tristel, and reassess the opportunity when the stock settles down at its new level.

Powering ahead

However, I don’t have such qualms about fast-growing e-banking and international payments firm FairFX Group (LSE: FFX). In September’s half-year results report, the firm revealed a 97% increase in revenue, to £12m, compared to the equivalent period last year. Adjusted profit, before tax, rose to £2.6m, from £0.2m the year before.

Chief executive Ian Strafford-Taylor said in the report he expects operationally-geared revenue to “increasingly flow through to profit” in the second half of the year. Despite weak sterling, Brexit, and fewer people taking holidays, he’s confident that full-year results will be “in line with expectations.” 

Meanwhile, City analysts have pencilled in earnings of more than 9p per share for 2019, which puts the firm on a forward P/E ratio of around 14 at today’s share price close to 130p. I think the outlook for growth is strong and see any weakness in the share price now as an opportunity for me to buy.

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Kevin Godbold owns shares in FairFX Group but not in Tristel. 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.

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