Buy this small cap ASX stock with a 'lucrative opportunity'

Bell Potter thinks this speculative stock could have major upside thanks to its US market opportunity.

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Now could be the time to pounce on one small cap ASX stock if your risk tolerance allows for it.

That's the view of analysts at Bell Potter, which believe this speculative stock could have a "lucrative opportunity" in the United States.

Which small cap ASX stock?

The small cap in question is Genetic Signatures Ltd (ASX: GSS).

Genetic Signatures is a specialist molecular diagnostics (MDx) company that is focused on the development and commercialisation of its proprietary platform technology, 3base.

It notes that it designs and manufactures a suite of real-time Polymerase Chain Reaction (PCR) based products for the routine detection of infectious diseases under the EasyScreen brand. Its current target markets are major hospitals and pathology laboratories undertaking infectious disease screening.

What is the broker saying about Genetic Signatures?

Bell Potter notes that the small cap ASX stock recently announced that the US Food & Drug Administration (FDA) has cleared its EasyScreen Gastrointestinal Parasite Detection Kit and GS1 automated workflow' for marketing and sale in the United States.

The broker has described this as a transformational milestone. It commented:

The first FDA clearance for GSS in June 2024 was a transformational milestone for the company, allowing commercialisation into the USA, the largest molecular diagnostics market globally (~40% of global sales). The FDA-cleared test, called the 'Gastrointestinal Parasite Detection Kit', is differentiated from US competitors by its broader coverage of 8 pathogen targets compared to only ~3-4 covered by existing multiplex tests.

Bell Potter thinks that the company's test has a good opportunity to with market share in the United States given how it is a more efficient, accurate and profitable option for users. It adds:

The limited coverage from existing tests means conventional microscopic examination – referred to as ova and parasite (O&P) tests – are still widely used in the US, with ~5.5 million O&P tests performed annually. O&P tests involve the time-consuming, labour-intensive, inaccurate process of visually examining stool samples under a microscope to identify parasites. O&P tests have turnaround times of 2-4 days with minimal profits for labs at reimbursement of ~US$20/test, whereas GSS' product is covered by existing reimbursement codes at US$263/test, therefore providing a more efficient, accurate and profitable replacement to O&P tests.

Speculative buy

In light of the above, the broker has retained its speculative buy rating on the small cap ASX stock and lifted its price target to $1.10 (from 75 cents).

Based on its current share price of 73 cents, this implies potential upside of 50% for investors over the next 12 months. It concludes:

FY25 is set to be a positive year for GSS following the appointment of a globally experienced CEO and improved balance sheet post the recent capital raise. First US sales are expected in 1H FY25 and Aus sales should revert to growth following the TGA's clearance of the revised respiratory test in April. We have updated our forecasts and valuation following the trio of announcements in June and maintain our BUY (speculative) recommendation. We increase our valuation to $1.10 (from $0.75) and see comfortable room for upside to the current ~$119m enterprise value.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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