Market research indicates a continued high level of confidence in the effectiveness and potential of cell and gene therapies, and major companies in the field continue to focus on the development of these therapies. As a result, the cell counting market, particularly within cell and gene therapy and bioprocessing, is expected to grow significantly in the coming years. ChemoMetec, being one of the largest companies providing equipment for cell counting, is well-positioned to benefit from this trend. But is ChemoMetec a good investment? This is what I will explore in this analysis.
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in ChemoMetec. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. I don't own any stocks in competitors of ChemoMetec either. Thus, I have no personal stake in ChemoMetec. If you want to purchase shares (or fractional shares) of ChemoMetec, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $50.
The Business
ChemoMetec is a Denmark-based company specializing in the development and manufacturing of advanced cell counting and analysis equipment. Founded in 1997, the company has grown into a global leader in providing high-precision instruments for sectors such as biotechnology, pharmaceuticals, stem cell research, and cell-based therapies. ChemoMetec’s flagship product line, the NucleoCounter series, is widely used for measuring cell count and viability, particularly in cancer research, immunotherapy, and bioprocessing. The company operates across three key business areas: Life Science Research, Cell and Gene Therapy, and Bioprocessing (LCB), which make up 91% of total revenue. Animal semen production and quality control contribute 8%, while beer production control and milk quality make up the remaining 1%. Geographically, ChemoMetec derives 59% of its revenue from the USA and Canada, 32% from Europe, and 9% from other international markets, illustrating its global reach. In terms of product categories, 47% of revenue comes from consumables, 29% from instruments, 23% from services, and 1% from other products. The company’s business model is centered on its patented analytical technology, which provides precise and consistent results, giving it a competitive edge. ChemoMetec’s moat is built on technological innovations, first-class customer support, and a highly skilled workforce. Moving forward, the company’s strategy focuses on leveraging these strengths to further consolidate its market position and expand its international footprint.
Management
Martin Helbo Behrens is the CEO of ChemoMetec. He initially joined the company’s Group Finance department as an accountant and later relocated to the USA in 2021 to take up the roles of COO and then CFO of ChemoMetec's American subsidiary. In these capacities, he played a significant role in driving ChemoMetec's growth and success in the North American market. After nearly three years in the USA, Martin Helbo Behrens returned to ChemoMetec's head office in Allerød in 2023 as Deputy COO, before becoming COO in February 2024 and then being appointed CEO in March 2024. His promotion to CEO was based on his deep understanding of ChemoMetec's organization, products, and markets, as well as the results he helped achieve for the company. Since taking over as CEO, Martin Helbo Behrens has reshaped the Executive Management and made several organizational adjustments. His leadership has emphasized a focused sales strategy and accelerated product development, particularly in bioprocessing, which is seen as a key area for future growth. His appointment came after the former CEO had been in the position for only eight months, suggesting that the board has considerable trust in him. Although it is too early to fully evaluate his performance as CEO, I appreciate his broad experience across different roles within the company and his deep insights into its operations, products, and markets. Therefore, I feel confident in giving Martin Helbo Behrens the benefit of the doubt as CEO.
The Numbers
The first metric to investigate is the return on invested capital (ROIC). Our criterion requires a 10-year history with all figures exceeding 10% annually. ChemoMetec has delivered a ROIC above 10% in eight out of the past ten years, and the last year with a ROIC below 10% was back in 2017. Since 2018, ChemoMetec has consistently achieved a ROIC above 20%, which is very encouraging. Notably, the company delivered a ROIC above 30% every year from 2020 until fiscal year 2024, when ROIC decreased. The decline was primarily due to macroeconomic factors, so I'm not overly concerned that ChemoMetec delivered its lowest ROIC since 2018 in fiscal 2024. While a ROIC above 20% is still impressive, I hope to see ChemoMetec increase its ROIC in fiscal 2025, with the potential to return to consistently delivering a ROIC above 30%.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don't have the growth rate from 2013 as Finbox only provides data for the past ten years. ChemoMetec has managed to increase its equity every year in the past decade, which is very encouraging. Excluding fiscal year 2024, which was a challenging year for many companies, ChemoMetec had consistently grown its equity by more than 10% annually, which is impressive. Hopefully, as macroeconomic conditions improve, ChemoMetec will return to growing its equity at a rate of over 10% per year.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. ChemoMetec has managed to deliver positive free cash flow in nine out of the past ten years, with 2016 being the only year with negative free cash flow. Although free cash flow decreased in fiscal year 2024, which was a challenging year for the company, it remains the third-highest free cash flow ever, which is encouraging. ChemoMetec has consistently maintained a high levered free cash flow margin since 2019, and despite a decrease in fiscal year 2024, it is still impressive to see the margin remain above 20%, indicating that the company is a high-quality business. The free cash flow yield is above the ten-year average but still low at 1,6%, suggesting the shares are trading at a premium, which is something we will revisit later in the analysis.
Debt
Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a period of three years, which is determined by dividing the total long-term debt by earnings. Upon analyzing ChemoMetec's financials, it is evident that the company has no debt. I like to invest in companies without debt because these companies often have the flexibility to invest in new opportunities quickly, without needing to consult with creditors or shareholders. Moreover, they are typically better positioned to weather economic downturns, as they don't have the burden of debt repayments hanging over them.
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Risks
Based on my findings so far, I believe that ChemoMetec is an intriguing company. However, no investment is without risk, and ChemoMetec also faces its fair share of challenges. One significant risk is macroeconomic factors. Macroeconomic factors present a significant risk when investing in ChemoMetec due to the company’s reliance on capital-intensive industries, particularly small and medium-sized biotech companies. These firms, which have historically contributed to ChemoMetec's strong growth in the cell and gene therapy sector, have struggled to secure fresh capital lately. This is largely a result of the challenging macroeconomic environment, characterized by high interest rates and uncertainty in financial markets. The higher cost of borrowing has made it difficult for many biotech firms to finance their development projects, leading to reduced investments in new instruments and technology. As many of ChemoMetec's customers depend on external capital for their operations, reduced access to funding has caused them to scale back on purchases and trials, directly impacting ChemoMetec’s sales of instruments. This trend has been especially pronounced in smaller companies and start-ups in the biotech space, which were once key drivers of the company’s revenue growth.
Product development poses a significant risk for ChemoMetec due to the inherent challenges in creating innovative and market-ready products. Developing new technologies involves navigating numerous technological, design, and intellectual property hurdles, any of which could delay or halt progress. For a company like ChemoMetec, which relies on cutting-edge technology to maintain its competitive advantage, delays in product development can have substantial consequences. Technological obstacles are a major concern, as the company needs to consistently push the boundaries of its existing technology to meet market demands. However, even with substantial investment in research and development, there is no guarantee that new products will meet the necessary performance criteria or integrate smoothly into existing systems. In addition to technological risks, product development carries significant financial risks. Developing, testing, and launching new products is costly, and there is always a risk that the investment may not yield the desired return. The successful introduction of innovative products is critical to sustaining ChemoMetec’s market position and driving growth, making the risks associated with product development a central concern for the company's future prospects.
Frequent changes in leadership, such as ChemoMetec's turnover of eight CEOs since its IPO in 2007, with the most recent CEO lasting only eight months, present significant risks for the company. One of the main concerns is the lack of consistent strategic direction. Each new CEO may bring different priorities, leadership styles, and strategic visions, potentially causing disruptions in long-term planning. This inconsistency can hinder ChemoMetec’s ability to execute and adhere to a coherent strategy, leading to uncertainty both internally and externally in the market. Additionally, rapid leadership turnover can disrupt key relationships with stakeholders, including investors, customers, and partners, who may perceive instability in the company. This perception can damage investor confidence and weaken customer loyalty, as stakeholders might be hesitant to commit long-term partnerships to a company that appears to lack stable leadership. A high CEO turnover rate can also signal deeper organizational issues, whether due to conflicts at the board level, challenges in executing the company’s strategy, or difficulties in navigating external market pressures. Investors often view frequent CEO changes as a red flag, suggesting that the company may struggle to find the right leadership to steer it through its challenges. Moreover, frequent leadership changes can lead to a loss of momentum in product development and innovation. For a company like ChemoMetec, which relies heavily on technological advancement and market responsiveness, disruptions in leadership can delay product launches and affect the company’s competitive position in its fast-evolving markets.
Reasons to invest
There are numerous reasons to consider investing in ChemoMetec. One compelling factor is the positive trends in the market they operate in. The positive trends emerging in the cell and gene therapy market present a strong reason to consider investing in ChemoMetec. Recent market data shows an increase in capital availability for medium-sized U.S. companies engaged in later-stage cell and gene therapy development, particularly those with promising test results. This improvement in financing conditions shortens the investment horizon for these companies, making them more likely to accelerate their projects and increase demand for specialized cell counting and analysis equipment like ChemoMetec’s. Moreover, market confidence in the potential of cell and gene therapies, especially CAR-T therapies, remains high. Several new therapies have recently received regulatory approval, with some advancing to second-line cancer treatment. This demonstrates significant therapeutic progress and opens up a broader patient base. Additionally, the expansion of cell and gene therapies into new areas, such as rare and autoimmune diseases, further broadens the market potential. This creates more opportunities for growth in ChemoMetec’s key business areas, positioning the company to capitalize on these evolving trends in the biotech and pharmaceutical sectors.
The launch of new instruments represents a strong reason to invest in ChemoMetec, as it not only bolsters the company's product portfolio but also positions it to capture more market share in high-growth sectors. The XcytoMatic 30 (XM30) and XcytoMatic 40 (XM40) are designed for automation in cell and gene therapy, as well as bioprocessing, addressing the growing industry demand for more efficient, automated production solutions. These instruments integrate into fully or semi-automated production flows, offering unique value propositions by optimizing processes and reducing costs for customers. Additionally, ChemoMetec will introduce the Xcyto 5 and NucleoCounter NC-203 in fiscal year 2025, further diversifying its portfolio by providing solutions that span a larger part of the value chain, from development to production. This diversification reduces reliance on any single market segment and enhances the company's resilience, allowing ChemoMetec to compete more effectively in the expanding bioprocessing market.
Services and consumables are a crucial reason to invest in ChemoMetec because they provide a stable and recurring revenue stream, independent of the company's sales of new instruments. While instrument sales may fluctuate with market conditions, sales of consumables and services grow alongside the installed base of instruments, offering consistent, predictable revenue. ChemoMetec has experienced double-digit growth in both segments, with consumables increasing by 10% and services by 13%, even during periods when instrument sales were down. This demonstrates the resilience and importance of these revenue sources. Consumables, such as test kits and disposable items required for the operation of ChemoMetec’s instruments, are essential for customers to continue using the equipment effectively. As the company sells more instruments, demand for these consumables naturally grows, creating a recurring revenue stream. Likewise, service contracts—which cover software add-ons, maintenance, and equipment installation—provide long-term value to customers while offering ChemoMetec recurring income. Furthermore, ChemoMetec's potential acquisition of Ovizio Imaging Systems, a company known for generating a significant portion of its revenue from consumables and service contracts, would further strengthen this recurring revenue model, enhancing the company’s financial stability and growth prospects.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 7,83, which is from 2023. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 23,1% a year in the next five years, but 15% is the highest number I use. Additionally, I have selected a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on ChemoMetic's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 234,90. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy ChemoMetic at a price of DKK 117,45 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 129, and capital expenditures were 21. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 15 in our calculations. The tax provision was 40. We have 17,402 outstanding shares. Hence, the calculation will be as follows: (129 – 15+ 40) / 17,402 x 10 = DKK 88,50 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With ChemoMetec's Free Cash Flow Per Share at DKK 6,21 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 98,03.
Conclusion
I believe that ChemoMetec is an intriguing company that operates in a growing sector. The company has new management, but given the CEO's extensive experience within the company, I am willing to give him the benefit of the doubt. ChemoMetec has consistently delivered a high ROIC and a strong levered free cash flow margin, indicating that it is a quality business. Macroeconomic factors pose a risk for ChemoMetec because the company's growth depends heavily on capital-intensive industries like small and medium-sized biotech firms. In challenging economic conditions, characterized by high interest rates and reduced access to funding, these firms struggle to secure the capital required for new investments, impacting ChemoMetec’s sales. Product development is another risk due to the complexities involved in creating innovative technologies, which require overcoming technical, design, and intellectual property challenges. Any delays or failures in this process could hinder the company’s ability to maintain its competitive advantage. Frequent leadership changes, with eight CEOs since its 2007 IPO, present a risk of inconsistent strategic direction and potential disruptions in long-term planning. This instability could erode stakeholder confidence and impact the company’s momentum in product development and innovation. On the positive side, emerging trends in the cell and gene therapy market, such as increased capital availability for later-stage projects and growing confidence in therapies like CAR-T, are expected to boost demand for ChemoMetec's specialized cell counting equipment, offering strong reasons to invest. The launch of new instruments, like the XM30 and XM40, enables ChemoMetec to meet growing demand for automation in cell therapy and bioprocessing, strengthening its position in high-growth sectors. Services and consumables provide ChemoMetec with a stable, recurring revenue stream that grows with the installed base of instruments, offering consistent income even when instrument sales fluctuate. Overall, I believe ChemoMetec is a strong company with solid long-term prospects. I will buy shares at the intrinsic value of the margin of safety price, which I have calculated to be DKK 234.
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