Kromek (LSE:KMK) is a penny stock that has been making investors money recently. In the past year, it has jumped 59% to 9p. That’s better than the FTSE 100 and S&P 500 put together.
Looking ahead, though, two brokers covering this under-the-radar penny share reckon it can head much higher. Putting their price forecasts together, the average is 22p — or 141% higher!
Sounds great. But what’s the catch?
What does it do?
Kromek, which has a £62m market cap, is a developer of radiation detection and bio-detection technology solutions. It has two primary divisions, both leveraging its proprietary cadmium zinc telluride (CZT) platform.
CZT? That’s a semiconductor material used in medical imaging and radiation detectors. So one division (Advanced Imaging) sells the tech inside CT and SPECT scanners to detect diseases and airport scanners to identify explosives.
The other segment — CBRN Detection (chemical, biological, radiological, and nuclear) — provides portable solutions for nuclear security and defence. This is currently the smaller unit.
Solid progress
On Tuesday (12 May), the company dropped a positive trading update on performance for the 12 months to 30 April (FY26). It said full-year results should be in line with market expectations for revenue of £27.2m and pre-tax profit of £2.15m.
During the year, Kromek won new orders totalling £8.8m, and management says its products and solutions will support “customers’ transition towards next generation photon counting CT and SPECT scanners“.
This refers to a technology upgrade currently happening in the medical world among OEMs (original equipment manufacturers). Speaking of which, Kromek signed a $37.5m deal last year with Siemens Healthineers to run over four years.
This is to provide the medical technology giant with “know-how and use rights of IP on a non-exclusive basis, as well as furnaces and related services“. The contract has given a significant boost to the firm’s Advanced Imaging unit.
Meanwhile, the CBRN Detection division is growing, driven by global demand for its nuclear security products amid national security concerns.
The Group ended the year with continued momentum and remains focused on executing against its strategic priorities and continued growth across both divisions.
Kromek
What’s the catch?
One catch here is that the timing of contracts can result in lumpy financials. For instance, FY26’s revenue is only expected to be slightly higher than the year before, but that was when a chunk of the lucrative Siemens Healthineers deal was recorded.
Naturally, this also has an impact of profitability. For this fiscal year (FY27), the forward price-to-earnings ratio is 48, making the stock look pricey. But a couple of new contracts could quickly change the earnings picture.
Finally, it’s worth mentioning that an uptick in interest rates is a risk. Small-cap growth stocks like Kromek (which doesn’t have a long history of profitability) are highly sensitive to rate changes.
My verdict
On balance, I think the stock’s worth a look for a more adventurous investor. A price-to-sales ratio of 1.6 isn’t particularly high, while there should be plenty of defence and national security opportunities across Europe and elsewhere in the years ahead.
To given an example, it’s working on new biological agent detection products at its highly-specialised evaluation chamber in County Durham. From 2027 onwards, management believes these will offer “significant” commercial opportunities.
