Buy this small cap ASX stock with a 'lucrative opportunity'

Bell Potter thinks this speculative stock could have major upside thanks to its US market opportunity.

| More on:
A smiling businessman in the city looks at his phone and punches the air in celebration of good news.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Now could be the time to pounce on one small cap ASX stock if your risk tolerance allows for it.

That's the view of analysts at Bell Potter, which believe this speculative stock could have a "lucrative opportunity" in the United States.

Which small cap ASX stock?

The small cap in question is Genetic Signatures Ltd (ASX: GSS).

Genetic Signatures is a specialist molecular diagnostics (MDx) company that is focused on the development and commercialisation of its proprietary platform technology, 3base.

It notes that it designs and manufactures a suite of real-time Polymerase Chain Reaction (PCR) based products for the routine detection of infectious diseases under the EasyScreen brand. Its current target markets are major hospitals and pathology laboratories undertaking infectious disease screening.

What is the broker saying about Genetic Signatures?

Bell Potter notes that the small cap ASX stock recently announced that the US Food & Drug Administration (FDA) has cleared its EasyScreen Gastrointestinal Parasite Detection Kit and GS1 automated workflow' for marketing and sale in the United States.

The broker has described this as a transformational milestone. It commented:

The first FDA clearance for GSS in June 2024 was a transformational milestone for the company, allowing commercialisation into the USA, the largest molecular diagnostics market globally (~40% of global sales). The FDA-cleared test, called the 'Gastrointestinal Parasite Detection Kit', is differentiated from US competitors by its broader coverage of 8 pathogen targets compared to only ~3-4 covered by existing multiplex tests.

Bell Potter thinks that the company's test has a good opportunity to with market share in the United States given how it is a more efficient, accurate and profitable option for users. It adds:

The limited coverage from existing tests means conventional microscopic examination – referred to as ova and parasite (O&P) tests – are still widely used in the US, with ~5.5 million O&P tests performed annually. O&P tests involve the time-consuming, labour-intensive, inaccurate process of visually examining stool samples under a microscope to identify parasites. O&P tests have turnaround times of 2-4 days with minimal profits for labs at reimbursement of ~US$20/test, whereas GSS' product is covered by existing reimbursement codes at US$263/test, therefore providing a more efficient, accurate and profitable replacement to O&P tests.

Speculative buy

In light of the above, the broker has retained its speculative buy rating on the small cap ASX stock and lifted its price target to $1.10 (from 75 cents).

Based on its current share price of 73 cents, this implies potential upside of 50% for investors over the next 12 months. It concludes:

FY25 is set to be a positive year for GSS following the appointment of a globally experienced CEO and improved balance sheet post the recent capital raise. First US sales are expected in 1H FY25 and Aus sales should revert to growth following the TGA's clearance of the revised respiratory test in April. We have updated our forecasts and valuation following the trio of announcements in June and maintain our BUY (speculative) recommendation. We increase our valuation to $1.10 (from $0.75) and see comfortable room for upside to the current ~$119m enterprise value.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.
Healthcare Shares

Broker says this ASX 200 biotech stock is a top buy

Let's see what Bell Potter is saying about this biotech.

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

Why CSL shares are a buy today despite the looming Trump tariffs

A leading expert believes CSL shares are still trading for a bargain today. Here's why.

Read more »

A businesswoman pulls her glasses down in shock to look at the bad news on her computer.
Healthcare Shares

Why did the Telix share price just crash 16%?

Investors are sending the Telix share price plunging today. But why?

Read more »

Broker analysing the share price.
Healthcare Shares

Expert: 2 ASX healthcare stocks to avoid before reporting season

Not all healthcare stocks are created equal.

Read more »

A group of people in a corporate setting do a collective high five.
Healthcare Shares

Should I buy Pro Medicus or CSL shares ahead of earnings season?

The ASX healthcare sector may be currently undervalued.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Healthcare Shares

Why Mesoblast shares can keep storming higher

More big returns could be on the way for buyers of this high risk stock according to Bell Potter.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »

couple having a happy discussion with a banker
Healthcare Shares

Expert: 4 ASX healthcare stocks to buy ahead of reporting season

Could these ASX healthcare stocks be good additions to your portfolio?

Read more »