Junior drug and respiratory equipment seller Medical Developments International Ltd (ASX: MVP) entered a trading halt today in advance of an announcement the company expects to make regarding its pending licensing application in Europe.
The What:
Up 96% so far for the year, Medical Development shares have soared on the back of a 300% increase in Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) compared to the previous year.
The company has already commenced selling its non-opioid analgesic Penthrox in Australia with some success, and is also very close to repaying the last of its outstanding debts, according to the most recent half-yearly report.
An anticipated update – which the company has hinted will be positive – on Monday should see Medical Development granted permission to license its products in key European markets.
So What?
The early stages of a company like this one are exciting as successful sales can trigger incredibly rapid profit and share price growth – as the recent tripling of EBITDA indicates.
Given that Europe is a far larger market than Australia, the potential for sales is significantly greater and as product awareness grows both domestically and overseas the company should enjoy rapid growth in its sales.
Now What?
I think investors can expect to see accelerating sales growth from Medical Development in the near to medium term, accompanied by a corresponding spike in its shares on Monday when the announcement is released.
Potentially the company could multiply its profits again this year and it will need to, considering that shares trade on an astronomical Price to Earnings (P/E) ratio of well over 100.
However, a strong financial position and no debt provide a solid footing, and if Medical Developments can double profit this year and again next year it will be trading on a P/E of under 20 (assuming share prices remain constant, which they won't).
Now you know why investors get excited about small-cap stocks!