1 penny stock down nearly 50% in my Stocks and Shares ISA!
Creo Medical (LSE: CREO) has been a big disappointment in my Stocks and Shares ISA. Since I first invested in early 2023 (then again last year, at a higher price), the penny stock is down almost 50%. It’s now just under 16p.
On 17 February, shareholders got a trading update from the £65m medical device firm. Was it any good? Let’s take a look.
Mixed update
AIM-listed Creo Medical makes minimally invasive electrosurgical devices. Its flagship Speedboat product can do multiple things — cut, coagulate, dissect, and inject — in a single instrument, eliminating the need for multiple tools.
The company is transitioning from the development phase to full commercialisation, and its devices are being used in a growing number of hospitals. In the full-year trading update, though, we saw mixed results.
Revenue for 2024 is expected to be roughly £30.4m, down slightly from 2023’s £30.8m. Within this, Creo Core Technology revenue grew 74% to £4m, with the second half achieving a 50% growth in sales. This covers sales from all core products, including its latest Speedboat UltraSlim device. Management said there had been “significant new customer additions during the period“.
Elsewhere, its innovative MicroBlate Flex device is making progress in robotic-guided lung cancer procedures. It’s now in use with Intuitive Surgical’s Ion robot system at two UK hospitals. More sites are to launch soon, with the expectation that these will becoming revenue-generating after initial cases. Unfortunately though, no revenue was recorded here during the period.
Regarding 2025, the company said it had made a “positive” start to the year, with trading in line with expectations.
Decent cash position
Earlier this month, Creo completed the sale of 51% of its Creo Europe consumables business to Micro-Tech, a Chinese firm. Creo Europe markets both its own and third-party consumables and systems.
Following this, the group’s cash position was £31.2m. It said this strategic sale “strengthens Creo’s commercial platform and enables Creo to continue to fund the ongoing strategic development of its core technology business“.
Meanwhile, the company says it has reduced operating costs by £5m, with the full benefit to be seen this year. We won’t know exactly how much the firm has been losing till the full earnings results in April.
According to analysts at Edison, cash-flow breakeven is now likely to be achieved in 2028 versus 2025 previously. Therefore, Creo is expected to be loss-making for some time, which obviously adds risk.
My thoughts
The deal with Intuitive still looks promising to me, with sites now performing combined lung diagnosis and procedures with the robotic system and Creo’s MicroBlate Flex device. This could eventually be a high-margin revenue stream.
The company also has dry powder to invest in its core business, and I expect a significant ramp-up in revenue from just £4m. If that doesn’t happen, the stock could fall even further.
I’m optimistic it can recover, however, if I’m patient. Indeed, broker Cavendish has reiterated its 70p share price target — over 330% higher than the current level (no guarantees it will end up there, of course). It said it now expects Creo to reach “profitability utilising its internal resources“.
At 15p, Creo might be worth a look for risk-tolerant investors. As for me, I’m going to keep the shares I already hold, but I won’t buy any more.
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Ben McPoland has positions in Creo Medical Group Plc and Intuitive Surgical. The Motley Fool UK has recommended Intuitive Surgical. 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.
