I tipped Tristel (LSE: TSTL) shares to outperform when the market was crashing on 27 February, 2020. I believed investors would look favourably on a manufacturer of disinfectant products. Tristel provides disinfectant solutions for equipment and surfaces in hospitals, veterinarian practices, and manufacturing facilities.
Part of my motivation for writing this article was to investigate how Tristel shares have performed, as UK markets went into meltdown over the last month or so. Shares in Tristel are priced about 12% lower now than they were at the end of February. The FTSE All-Share index is down around 20%, and the FTSE AIM All-Share index – which Tristel is a member of – has declined by nearly 30% over the last month.
Two ways for shares to outperform
When you pick stocks, you want them to go up by more than the market rises. Another aspect of outperforming the market is for stock picks to go down by less when the market is falling. Tristel shares have outperformed the broader market over the last month.
There was a small blip around 19 March, when the share price crashed by 30% but then completely recovered, all within the space of seven days. No official news release explains the decline. This is perhaps a good time to remind investors that AIM-listed companies are smaller, with relatively illiquid shares, and share prices can swing wildly.
Although the brief decline is inexplicable, the recovery is not. On 23 March, Tristel announced a know-how license and product supply agreement with Byotrol, another AIM-listed infection control focused company. Smuggled in at the bottom of the announcement was a statement explaining that Tristel has experienced very strong demand for its products due to the Covid-19 pandemic.
Tristel’s lack of exposure to convoluted international supply chains and manufacturing capacity means it is able to meet the increased demand. This was enough to remind investors that Tristel is going to see a bump in sales over a period when other companies are facing real difficulties.
Long-lasting outperformance
I have counselled against buying companies on the basis of short-term performance boosts. As an example, share prices of food retailers have shot up. This is understandable as spending on groceries has shot up by something like 28%. But once the coronavirus outbreak is controlled, stockpiling and panic-buying will stop, and revenues are likely to fall.
Tristel will see a boost to revenues as a result of the coronavirus outbreak. However, any decline in Tristel’s revenues post-viral outbreak will be tempered by its impressive underlying revenue growth. Tristel’s revenues have grown by 14% annually measured over the last 10 years.
The link-up with Byotrol will produce a new longer-lasting disinfectant product that combines the two companies’ core technologies. Tristel will also manufacture and sell two of Byotrol’s intermediate-level disinfectants under licence, expanding its range of products.
Investors in Tristel can look forward to a US market entry. Manufacturing and distribution agreements are already in place in the US. Some US product approvals are in palce, and others are awaited. Approvals to sell and distribute Tristel’s products in China are in process.
Tristel is a growing company. Even if operating lease obligations are capitalised (which they will be in future), Tristel has a healthy balance sheet. I believe it will continue to outperform in the current bear market and beyond.