Last week Graphene Nanochem (LSE: GRPH) issued its half-year trading update, which came in below expectations and sent the company’s share price plummeting by around 30%.
To me, these declines looked to be excessive and it seems as if the market agreed with me. After hitting a low of 38.7p on 30 September, the company’s shares have rallied strongly and are currently trading just above 62p, a full 61% above the low hit last week.
However, Graphene’s shareholders still have plenty to look forward to. Here are three reasons why you should consider buying in today.
Rapid sales growth
The one thing that stood out within Graphene’s first-half results was the company’s rapid revenue growth. Graphene reported a 102% increase in revenue to £20.4m for the first half of the year. Unfortunately, due to the slower-than-expected development of its PlatDrill Series of oilfield chemicals, the company’s earnings failed to register the same kind of growth.
Nevertheless, for the first half Graphene’s losses narrowed from £5.4m to £3.5m. So, as soon as the company gets the development of its oilfield chemicals back on track, profitability should follow.
High demand
Graphene’s rapid sales growth indicates that there’s a strong demand for the company’s advanced materials and today’s news confirms this. Indeed, it was revealed today that Graphene has won a won a second commercial order for its PlatDrill Series chemicals worth $4.8m — around £3m, or 15% of first half revenue.
The order for 23,400 barrels is three times more than the first order for the Plat chemicals and was placed by Asian oil services provider, Scomi Oiltools.
Scomi Oiltools has a current order backlog of £1bn and gives Graphene a great client-base with which to test its new product on. Hopefully, Scomi Oiltools’ clients will quickly recognise the benefits of the PlatDrill chemicals, boosting Graphene’s business.
Not expensive
As mentioned above, Graphene was expected to report a small profit this year. However, due to development delays the company now expects to report a loss for full-year 2014.
Still, with sales growing rapidly, Graphene is likely to report a profit next year. It seems reasonable to suggest the company could report a 2015 profit similar to the one previously expected by City analysts this year.
On that basis, Graphene is set to report a pre-tax profit of £2.9m next year, or earnings per share of 2.3p, implying that Graphene is trading at a forward P/E of 27. This may look expensive at first but Graphene’s sales are set to double this year, that’s growth worth paying a premium for.