SmartKem, Inc. engages in the development of materials and processes for organic thin-film transistors backplanes for the manufacture of flexible electronics. Its transistor stacks are used in various applications, including bendable smart-phone displays, curved automotive displays, e-paper displays, wearables, fingerprint sensors, and printed biosensors. SmartKem, Inc. was founded in 2009 and is headquartered in Manchester, the United Kingdom.

SmartKem, Inc.

Technology

The company does not pay dividends at all, or it pays them sporadically. There have only been a few years with dividend payments in the past ten years. 

SMTK reported revenue of USD 0mn in the last 12 months, up 28% from FY24. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 15% from FY24 to USD 2.36.

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 73ppts and its growth decelerated by 45ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is slightly unfavourable.

The company has reported very poor EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to -6948.6% in the last 12 months, up from -35937.0% in FY23. 

Historically, SMTK has reported very poor net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled -10255.2%, a growth from -31477.8% in FY23. 

SmartKem, Inc. reported a return on equity (RoE) of -181.0% in the last 12 months, down from -121.4% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to -125.3% in the last 12 months, a decrease from -90.4% in FY23. 

In the last 12 months, the return on capital employed (RoCE) declined to -161.8%, below the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been -8.9 in the past several years. This ratio implies a fragile shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

SMTK has very poor trading liquidity. It will take at least a day or two for the average private investor to sell a common position under normal market conditions. Liquidity is very unstable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to bleak profitability, negligible return on capital, inadequate interest coverage, and poor cash flow generation. We note resilient historical revenue growth and low margin volatility, among the positive credit factors. 

In highly turbulent market conditions, SMTK is exceptionally volatile. In other words, the stock will be among the worst-performers in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be critical. 

In normal market circumstances, SMTK is exceptionally volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change quite unpredictably. The stock's losses on its worst days (less than 1-5% of the time) will range from critical to immense. 

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. 

SmartKem, Inc.

$ 1.39

2

SmartKem, Inc.

$ 1.39

2

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 1.39

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