Charmacy Pharmaceutical Co Ltd (HKG:2289), a HK$896.4m small-cap, is a healthcare company operating in an industry, which continues to be affected by the sustained economic uncertainty and structural trends, such as an aging population, impacting the sector globally. Healthcare analysts are forecasting for the entire industry, an extremely elevated growth of 43.0% in the upcoming year , and a massive growth of 40.5% over the next couple of years. However this rate still came in below the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Charmacy Pharmaceutical is lagging or leading in the industry.
View our latest analysis for Charmacy Pharmaceutical
What’s the catalyst for Charmacy Pharmaceutical’s sector growth?
Providers that are beginning to turn their attention to more transformative initiatives to bend the cost curve. In the previous year, the industry saw growth of 8.1%, though still underperforming the wider Hong Kong stock market. Charmacy Pharmaceutical lags the pack with its negative growth rate of -26.5% over the past year, which indicates the company has been growing at a slower pace than its healthcare provider peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 45.1% in the upcoming year. This future growth may make Charmacy Pharmaceutical a more expensive stock relative to its peers.
Is Charmacy Pharmaceutical and the sector relatively cheap?
The healthcare sector’s PE is currently hovering around 32.99x, above the broader Hong Kong stock market PE of 11.83x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 8.6% on equities compared to the market’s 9.7%. On the stock-level, Charmacy Pharmaceutical is trading at a lower PE ratio of 16.29x, making it cheaper than the average healthcare provider stock. In terms of returns, Charmacy Pharmaceutical generated 9.6% in the past year, in-line with its industry average.
Next Steps:
Charmacy Pharmaceutical’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. In addition to this, its PE is below its healthcare provider peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of, or enter into, the stock. However, before you make a decision on the stock, I suggest you look at Charmacy Pharmaceutical’s fundamentals in order to build a holistic investment thesis.