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A penny stock can often be valued so low because early growth enthusiasm wanes. And that’s the case with Kromek Group (LSE: KMK). But at the same time, if management is able to put things right, investors can often dream about multi-bagger future returns.
And at Kromek, the consensus broker price target suggests a 2.7 times gain for anyone buying at the 8.5p share price as the market closed on Friday (7 August). And the most bullish forecast puts it at a potential three-bagger. So what’s behind the big turnaround in sentiment?
What does Kromek do?
Kromek develops and manufactures radiation-detection and biohazard-detection equipment based on its own proprietary technology. What’s known as its CBRN Detection division supplies handheld radiation detectors to governments and security services.
The Advanced Imaging division supplies medical scanner manufacturers, involved in things like cancer and Alzheimer’s detection.
The markets for Kromek’s products are growing. But one problem is that a lot of cash has been needed for years of research and development.
And that’s partly the reason behind the stock’s poor performance over the past five years. For some time, Kromek has been burning cash while patient shareholders have waited for their ‘jam tomorrow’ moment. It might have come.
What’s changed?
Its shareholders have enjoyed a change in fortune over the past 12 months, with the share price up 70%. To uncover the reason for the first steps in a possible long-term turnaround, I can do no better than to quote the CEO:
This year has been pivotal for Kromek, marked by our maiden profit, which exceeded market expectations, and a significant reduction in debt.
CEO Dr Arnab Basu, FY results, September 2025
The share price has been dropping back a bit as 2026 has progressed. But we won’t have long to wait for the current year’s results, expected in September.
And we’ve had a trading update saying the company expects “revenues and [profit before tax] for FY26 in line with market expectations“.
Still risks ahead
Kromek’s journey to profit looks good to me. But my main reservation is that I’m not sure it’s reached sustainable profit yet. Those market expectations include approximately £2.15m of profit before tax — but that’s substantially below the £3.08m recorded last year.
Forecasts also suggest earnings per share could decline proportionally this year, and then dip further in 2027. But they’re showing potential net cash, which should ease one specific cause for worry.
On the positive side, Kromek told us its “CBRN Detection and Advanced Imaging divisions won new orders totaling £8.8m” in the second half of the year.
My verdict?
I think this could be a company whose small scale and pivotal position might only need modest further orders to multiply its earnings potential and drive some explosive share price growth.
I have high hopes for Kromek, and I’m keenly waiting to see those September results. But someone like the more risk-tolerant penny stock investor from my younger days could consider buying ahead of the news. Perhaps balanced with a stunning high-yield dividend candidate…
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Alan Oscroft does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
