Biome Australia Ltd (ASX: BIO)
Do you have a view on why this stock is being priced like it is going broke whilst fundamentally sound and promising outlook exists
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Answer
Hi Graeme,
For members not familiar with Biome, it develops and sells evidence-based probiotic, microbiome and complementary healthcare products through pharmacies, practitioners and retail channels in Australia and internationally, i.e. it’s a gut health and probiotics company.
Our view is the markets not pricing Biome (BIO) so much as if it’s going broke, more so, it’s pricing the stock from a high-growth story to a “prove-it” story – also, at this stage only one analyst cover the business. Plus, it’s a 26c micro-cap in the volatile Bio-Tech space, the perfect recipe for big swings in both directions.
- Revenue has grown rapidly to $18.4 million in FY25, with management guiding towards its first full-year profit after six consecutive quarters of positive EBITDA.
- Gross margins have remained strong at around 61%, highlighting the attractive economics of the business.
Arguably the market may now be focusing disproportionately on the risks. At around~$60mn market cap, you’re looking at a company generating more than $20m in annualised revenue, reporting positive EBITDA, growing strongly and targeting profitability.
Biome’s balance sheet remains relatively modest, with around $2.75 million in cash offset by roughly $2.9 million of debt. The investment debate is less about solvency and more about whether the company can convert strong revenue growth and positive EBITDA into sustainable cash generation.
- From a risk/reward perspective we like BIO ~26c as an aggressive trade.
