Alexium International Group Ltd: A promising small-cap?

Should you buy Alexium International Group Ltd (ASX:AJX) shares today?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Alexium International Group Ltd (ASX: AJX) is a small-cap company that designs and produces chemical treatments for textiles and sells them worldwide. It's got patents and patent applications on 25 different chemical solutions and has been growing rapidly.

Here are some key stats:

  • $160 million market capitalisation
  • ~A$16m in revenues (last 9 months)
  • Burning $5m cash per quarter but expected to hit break-even in current quarter
  • $6.4m cash at bank at 31 March 2017
  • Proprietary patents for flame-retardant equipment plus solutions for moisture wicking, antimicrobial, water repellent solutions, and more

Management states they now earn $2 million in recurring revenues each month from existing customers, which suggests the company is priced at about 7x annual sales. The total target market across Alexium's products is estimated in multiple billions and includes most textiles (bedding fabric, sportswear, uniforms, etc) and a variety of other surfaces.

With a low-cost method of application and the recent strong growth in sales, the company has been able to achieve benefits of scale and appears close to a tipping point where it can become cash flow positive and start doing profitable business. Sales are reportedly growing via both winning new customers and increasing sales to current customers.

The company is an interesting prospect but my chief concern is over its cash flows. Depending on sales growth, the company really only has enough cash to continue operating for the current quarter, and it's had to borrow ~$7 million at 15% per annum to pay for working capital requirements.

While this could be a positive, in that debt can be paid down and is not dilutive like a capital raising, any sort of unforeseen issue could see Alexium having to raise capital anyway. As a result I'll remain on the sideline for the time being.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »