hVIVO (LSE: HVO) is a small-cap UK stock that’s skyrocketed nearly 400% in five years. So it clearly doesn’t need a raging bull market to do well.

But with interest rate cuts on the horizon and a new government committed to stability, I think the stage is set for smaller UK stocks like this to perform very strongly.

Record H1

For those unfamiliar, the company is a specialist contract research organisation (CRO) focused on human challenge trials. These involve healthy volunteers being exposed to pathogens to test vaccines and treatments, providing critical data on efficacy and safety in a controlled environment.

The firm recruits volunteers through its FluCamp platform, which has a database of over 320,000 participants. Its customers are generally biopharma companies.

In July, we got a trading update for the first half of the year, meaning most of the firm’s interim results released today (10 September) was already known. But the report confirmed solid progress, nonetheless.

Revenue rose 30.6% year on year to £35.6m, while EBITDA jumped 67.6% to reach £8.7m. That EBITDA margin of 24.5% improved from 19.1% last year. Basic adjusted earnings per share increased 30.6%.

The company ended June with £37.1m in cash, up from £31.3m. It’s started paying an annual dividend.

Looking ahead, management expects full-year revenue to be £62m, which would represent revenue growth of around 11%. And 100% of that guidance is already fully contracted.

The EBITDA margin is anticipated to be at the upper end of market expectations (22%-24%).

By 2028, the firm sees annual revenue of at least £100m, suggesting the top line will grow at a compound annual rate of about 14%.

Further margin expansion expected

This growth will be underpinned by the company’s new state-of-the-art quarantine facility at Canary Wharf. This is the world’s largest human challenge unit.

During H1, it helped support the inoculation of a record number of volunteers across various studies.

Before relocating, hVIVO used quarantine rooms across multiple floors, resulting in a 7-8 minute sample delivery time to the lab. The new facility is on one floor and features a pneumatic chute system, cutting sample transport time to about 30 seconds.

Operational efficiencies like this are expected to further improve profit margins. The firm also continues to diversify its revenue streams through clinical trial design, volunteer recruitment services, and hLAB, its specialised laboratory service offering.

The weighted contracted orderbook stood at £71m in June, but management sees a £40m pipeline of promising opportunities in the short-to-medium term.

Reasonable valuation

Naturally, the company could face reputational risks if a high-profile problem occurs during a trial. Plus, it doesn’t have a long track record of profitability.

As for valuation, the stock is trading on a price-to-sales (P/S) ratio of 3.5 and a forward price-to-earnings (P/E) multiple of 20.5. Neither strikes me as stretched.

Looking ahead, I think the stock could fly higher, especially if a bull market takes off. I became a shareholder last year and added to my position this year. It remains one of my favourite small-cap stocks.