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Why the Advance NanoTek share price is up almost 1,000% in 12 months

The Advance NanoTek Ltd (ASX: ANO) share price has continued its remarkable run on Thursday following the release of a profit update.

At one stage Advance NanoTek’s shares were trading at a new all-time high of $4.89. When its shares reached that level, it meant they were up 400% since the start of the year and an even more impressive 986% since this time last year.

What is Advance NanoTek?

Advance NanoTek is a developer, manufacturer and marketer of innovative products based on a range of proprietary advanced material technologies and manufacturing processes.

To date, the company’s commercialised products include metal oxide powders and dispersions of zinc oxide, which acts as the UV blocker in sunscreens and some cosmetics.

Why is its share price up almost 1000% in a year?

Investors have been fighting to get hold of the company’s shares after it experienced a significant increase in demand for its products in FY 2019.

This strong demand led to the company almost doubling its half year revenue to $5.3 million. On the bottom line things were even more impressive, with the company posting a 186% increase in half year profit to $1.75 million.

But it doesn’t stop there. Things have improved further since the release of its half year results.

Earlier today the company released its third quarter profit update and revealed an unaudited quarterly profit after tax of $1.8 million (excluding its R&D tax benefit). This is three times higher than the prior corresponding period and brings its year to date profit after tax to $3.4 million.

Management advised: “This result is better than expected from our previous announcement on 22 February 2019. Sales of XP powder for the 9 months to 2019 are 100% up on 2018 full year sales. We now have close to 100T of outstanding sales orders that we hope to ship before the end of FY19, subject to new kilns being commissioned as planned.”

Should you invest?

As of February 22, the company had 58,126,252 shares outstanding. This means Advance NanoTek currently has a market capitalisation of ~$265 million.

If you annualise its current quarterly profit, it would mean its shares are changing hands at approximately 37x earnings.

I don’t think this is excessive given the company’s current growth profile. However, at this stage it is unclear whether this quarterly result can be repeated or improved on in the coming quarters.

In light of this, I think investors ought to keep it on their watchlist for now and keep a close eye on how things progress over the coming quarters.

Until then, I think fellow small cap shares ELMO Software Ltd (ASX: ELO) and Volpara Health Technologies Ltd (ASX: VHT) could be worth considering.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended Elmo Software and VOLPARA FPO NZ. 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 Scott Phillips.

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