Ten days ago, we covered the recent developments and growth prospects surrounding the biotech stock, Biomerica, Inc. (NASDAQ:BMRA). Since then, Share prices have remained stable, yet the company’s recent earnings release shows year-over-year net sales growth of 12.7%.
Given the company’s recent earnings, coupled with a market capitalization of just under $25 MM, we believe Biomerica to be substantially undervalued. We like Biomerica because biotechnology companies have the potential to grow quickly and achieve considerable profitability. Therefore, they can often become acquisition targets.
The best valuation metric for evaluating high-growth biotech companies is an Enterprise Value-to-Revenues (EV/Sales) ratio. It can be a great metric to determine how much of a biotech company’s growth is baked into the price. Given its recently-announced rise in net sales, Biomerica now trades at an EV/Revenues ratio of just 3.661. — substantial upside potential compared to its biotech peers.
Research and Development to Fuel Future Growth
Besides revenue growth, there were a few notable highlights from Biomerica’s recent financials. For instance, there was an increase of 44% in research and development (R&D) spending – which is a great thing, despite how it sounds. For a company that’s constantly developing new technologies — for medical diagnostic products and early detection solutions — this will only fuel its growth.
Geographic Revenue Diversity
As for international sales, Biomerica saw revenues attributable to Asia rise from $1,731,000 in 2016 to $2,412,000 for 2017. This represents a rise of over 39%. Biomerica’s nicely positioned as having revenue streams from across the globe. The 2017 revenue breakdown by geographic region is as follows:
Other Biomerica Financial Highlights Include:
- Net sales for the fiscal year 2017 were $5,791,670 versus net sales of $5,139,816 in fiscal 2016, an increase of 12.7% over the prior year.
- The % of cost of sales relative to sales decreased from 70.3%, to 65.1%, due to various factors which included higher sales as well as product mix of goods sold. This helps margins!
- The net loss decreased from $1,499,787 to $908,561, a decrease of $591,225.
Biomerica Growth Opportunities Going Forward
Biomerica’s testing kits and medical devices are currently sold to clinical laboratories, physician’s offices, as well as over-the-counter at pharmacies for at-home use. In an effort to expand the company’s reach, Biomerica just recently announced a potentially lucrative distribution agreement to supply one of its point of care products to a major pharmaceutical company for distribution in Mexico. With an estimated population of roughly 127.5 million people, Mexico represents a massive market opportunity.
Additionally, CEO Zack Irani mentioned that “The Company is very enthusiastic about the clinical and commercialization opportunities for our blood based InFoods® IBS technology, a diagnostic guided therapy that should allow for the identification of specific foods that are contributing to a person’s irritable bowel syndrome (IBS) symptoms. InFoods® IBS technology could revolutionize the way IBS is treated,” said Zackary Irani, Biomerica’s Chief Executive Officer. “We have also been making progress in our goal to start the InFoods® clinical trial and look forward to announcing more details in the future.”
Presently, BMRA shares are trading below $3. With the recent earnings announcement still circulating around Wall Street, it may not stay there for long.
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