Key statistics: ASX: CMP
Closing share price 27.06.17: $0.590
52-week high: $0.930
52-week low: –
Most recent dividend: –
Annual dividend yield: –
Last week shares in Compumedics (ASX: CMP) doubled in price.
Clearly somebody is excited about its prospects.
The trigger for this spectacular run was an announcement that it had received its first contract for a new technology it has been developing.
The contract, worth close to $5 million, is for magnetoencephalography (MEG) brain imaging technology.
This represents the largest systems contract in Compumedics’ history and opens a door to the multibillion-dollar brain imaging market.
The contract is with the Barrow Neurological Institute in Arizona, the world’s largest neurological disease treatment and research centre.
Brain imaging is used to study diseases such as dementia (including Alzheimer’s disease), epilepsy, autism and Parkinson’s disease.
The World Health Organisation has noted that these neurological disorders represent one of the world’s most significant and growing health burdens.
While Compumedics has a significant research side to the business, it is not a start-up reliant on funding to continue its existence.
It was founded 30 years ago and has been listed since 2000. The core component of the business is sleep and neurology diagnostics.
It is a leader in select markets, including the leading sleep diagnostics device supplier in Australia, China and Japan. The core business provides a steady base of revenue, with the high growth potential coming from neurology products such as MEG, as well as new cloud-based solutions enabling in-home e-health sleep devices.
This core business generated revenue of $37.5 million in 2016 along with net profit after tax of $3.3 million.
During the first half of 2017, net profit fell to $200,000 due to sales declines in the US and Germany.
Compumedics is not for the faint of heart.
During the past 12 months its share price has gone from 36.5c to 93c then all the way back to 33c before the sharp spike last week to 70c. On the day of writing it fell back 10%. The large swings reflect reactions to news, as well as the fact it is a small-cap stock with limited liquidity. Dr David Burton, the founder, chairman and CEO, holds 60% of shares on issue.
As with any stock engaging in R&D there is no guarantee the research will result in profitable products but there is the potential for a major breakthrough.
There are also quite a few other firms engaged in sleep and neurological disorder research so the competitive environment is robust.
At 60c it is trading on a PE of about 30. That is quite expensive.
As an investment, it falls into the category of a growth stock. If earnings can continue to grow as they have in the past few years then it could be very successful, but it is likely to be a bumpy ride.