At a 52-week low, is this penny stock the bargain of the year?

Penny stocks can be appealing investments thanks to their low share prices and potential for high returns. However, investing in these speculative small-cap shares carries greater risk than buying equities listed on the FTSE 100 or FTSE 250 indexes.

Volatility is a key concern. Investors considering these high-risk investment propositions need the stomach to endure massive share price movements in pursuit of portfolio gains. In short, they’re not for the faint-hearted.

One company that’s no stranger to volatility is Creo Medical (LSE:CREO). This AIM-listed healthcare device business specialises in minimally invasive surgical endoscopy. Trading at a 52-week low after a prolonged losing streak, is today the perfect time to buy this beaten-down penny stock?

A falling share price

Creo Medical has seen its market cap evaporate in recent years as its share price has taken a battering. Today, the stock market minnow’s valued for less than £52m.

There are some worrying signs in this penny stock for potential investors to monitor closely. The firm’s FY24 revenues failed to meet market expectations. The group total of £30.4m represented a 1.3% decline compared to the prior year’s figure of £30.8m. Frankly, it’s concerning to see the company going into reverse gear on such a crucial metric.

Creo Medical has also yet to turn a profit. The board expects FY25 will be another loss-making year. I’m worried more cash will need to be raised before the business becomes a profitable enterprise, which may not be easy given that it has historically experienced fundraising difficulties.

That said, in February, the company secured £25m in net inflows from divesting a majority stake in its European consumables business to a Chinese medical device manufacturer. Coupled with a £12.1m equity raise last year, Creo Medical has some financial headroom for the near future at least.

Recovery potential

On the bright side, this month marked the commercial launch of a new product — the SpydrBlade Flex — in the UK and EU. This could provide a much-needed boost for the company’s bottom line. The multi-modal endoscopic device has promising applications for minimally invasive treatment of colorectal cancer.

In addition, the potential of Creo Medical’s core offering can’t be understated. Its flagship Speedboat product suite uses remarkable technology. These tiny surgical instruments offer surgeons a one-stop shop to carry out incision, dissection, and coagulation procedures without needing to change devices.

The market opportunity is considerable. Some analysts believe the gastrointestinal endoscopic technologies market could be worth between £2.32bn and £2.48bn. If Creo Medical can successfully realise the commercial potential of its products, the shares could ultimately prove to be a lucrative investment at this early stage.

A penny stock to consider?

Like all penny stocks, Creo Medical faces significant risks. The fact that the shares were once changing hands for nearly £2.30, compared to 12.5p today, proves as much.

Nonetheless, the company’s risk/reward profile looks attractive to me right now at this low valuation. Improvement will be needed across a range of core financial yardsticks, but the firm’s unique patented technologies show significant promise.

So, is Creo Medical a bargain stock? Quite possibly! Bargain of the year? That’s probably a stretch. But for investors with sufficient risk appetites, I think this penny share deserves consideration.