With the world continuing to battle the Covid-19 pandemic, there has been a tremendous rise in hygiene-oriented expenditures by households and corporations alike. Many industries like hospitality have started showing signs of recovery and are ready to spend on making their premises as Covid-proof as possible.
As a result of this, I believe that there is going to be a strong demand for high-tech surface disinfection and air purification solutions, especially now that the U.S. Centres for Disease Control and Prevention have explicitly acknowledged that Covid-19 is airborne. In such an environment, fast-growing disinfection technology companies such as Applied UV (AUVI, Financial) are worth evaluating as they have the potential to rapidly scale up operations and provide excellent returns to investors.
About Applied UV
Applied UV was formed from the union of three main synergistic businesses – the SteriLumen disinfection technology, the Airocide air purification systems and furnishings manufacturer Munn Works. Munn Works’ furnishing products, such as drains and mirrors, are equipped with the SteriLumen technology, which uses a narrow range of ultraviolet light spectrum called UVC to destroy pathogens on surfaces.
The company’s core client base includes some of the most well-known hotel brands in North America, such as Hyatt (H, Financial), Hilton Hotels & Resorts, Marriott (MAR, Financial) and Four Seasons. The management has also attempted to enter other non-hospitality sectors such as healthcare and sports. The company had been in the news for becoming the official air purification partner of the Boston Red Sox and went on to install the Airocide System at Fenway Park and JetBlue Park. The management is clearly striving to make Applied UV a leading player in both air purification as well as surface disinfection.
SteriLumen’s effectiveness against SARS-CoV-2
The Applied UV management has actively marketed SteriLumen as a robust infection control technology with the ability to destroy pathogens on various surface areas safely and automatically, without human intervention. It had conducted many tests in the past with ResInnova Laboratories to test SteriLumen’s effectiveness against various kinds of bacteria and viruses, and earlier reports from 2020 had clearly indicated that the system was highly effective in killing OC43 human Coronavirus, a common surrogate for SARS-CoV-2. While this was a positive development, the management could not market with absolute certainty that the technology would be effective against SARS-CoV-2.
However, as per Applied UV’s latest press release, the company’s testing results for SteriLumen from an independent third-party laboratory confirm that its SteriLumen Lumicide Ribbon has the ability to kill SARS-CoV-2. This time, the company used CUBRC, Inc., an independent scientific not-for-profit testing laboratory, for the tests in order to evaluate the ability of the SteriLumen Lumicide. The tests were carried out in the laboratory’s Biosafety Level 3 facility and evaluated SteriLumen Lumicide’s effectiveness on two surface substrate materials, stainless steel and ceramic. The positive results indicate that the management should now be able to aggressively market SteriLumen-induced offerings as having the ability to automatically destroy the Covid-19 virus from its surface. It should create a huge demand for the company’s offerings in the core hospitality industry, which is gradually resuming operations, as well as other sectors such as healthcare.
Final thoughts
Applied UV’s stock is relatively less volatile when compared to most microcaps. We see a major spike in the stock price when the company executed its acquisition of the assets of Akida Holdings, including the right to manufacture and sell the Airocide air purification systems. The company has a nice holistic offering for air and surface disinfection.
Its current enterprise-value-to-revenue multiple of 11.83 appears reasonable given the huge potential of the technology. Assuming that this multiple remains constant, Applied UV should see a strong spike in its revenues across the end of 2021 as well as 2022 on account of the new anti-Covid pitch of its SteriLumen offering.
Another major positive associated with the stock is that it has barely 13.78 days of inventory on its balance sheet, which indicates that the manufacturing activity is barely able to keep up with the demand for its products. The riskiness associated with financial leverage is also low as Applied UV’s cash-debt ratio is 9.2 and its debt-to-equity is hardly 0.06. Overall, I am highly optimistic about the company and would strongly recommend it to microcap investors with a high risk appetite.
