Bioventix (BVXP)

A stock that I have been following for a while now is growth AIM small-cap stock Bioventix, who specialise in sheep antibodies and currently has a market cap of £191 million. The shares currently trade at over £38, which appears expensive at first glance. However, the company has performed extremely well over the last 3 and a half years since 2016, producing a return of 197% for investors.

To better understand the stock’s investment potential, investors need to look deeper into the company, researching areas such as its current business model and current financial situation. This will provide a clearer understanding as to whether the stock will provide future returns. 

BIOTECHNOLOGY

The firm operates in the biotechnology space, specialising in antibodies produced from sheep for use in diagnostic applications, for example, in the testing of drugs of abuse. Some of its top clients include Siemens and Philips, which supply testing machines to hospitals. 

These companies highlight the already strong client list that Bioventix has, something that I always try and look for when investing in small companies to gauge an idea of their current success. It’s important to understand who is buying the product in order to assess its value in the current market, and hence big names such as Philips provide a good indication for demand.

Due to the niche in which the firm operates, there are high barriers to entry for firms wanting to join the market place. For example, the required knowledge is both hard to find and therefore, expensive to hire. With such high barriers to entry, this prevents profits being competed away by new entrants to the market and in turn ensures Bioventix can continue to produce superior margins. 

VALUATION METRICS

Taking a look at the valuation metrics of the business, operating margin has been steadily growing for the last 4 years, with an operating margin of 85% in 2018, up from 65% in 2014. This is relatively high and links back to the ability to produce high margins on products due to markets being less competitive as a result of high barriers to entry. 

Further supporting the growth prospects of the business, there is a steady increase in net cash flow from operating activities, which reached £5.9 million in 2018. This indicates the company not only has the expertise in terms of their specific sector but also a competent management team in place in order to convert this knowledge into company growth. 

Moreover, in 2018 the company had no debt at all and haven’t for some time. This is encouraging for investors as the company is generating enough revenue to cover expenditure whilst still maintaining growth. This means that expansion is stable and is a good indicator that growth will continue in the long term.  

Though the stock looks expensive at first glance, once you have a deeper look you start to understand why. With solid valuation metrics and a dominant market place, the future looks bright for Bioventix and I would expect them to continue to grow moving forward.