Ergomed plc (AIM:ERGO), a UK£81.60M small-cap, is a healthcare company operating in an industry, which continues to endure a more demanding healthcare agenda, and the global need for innovative, cost-effective medicines continues to rise. Healthcare analysts are forecasting for the entire industry, the bottom line growth to double in the upcoming year , and a massive triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Ergomed is a laggard or leader relative to its healthcare sector peers. Check out our latest analysis for Ergomed
What’s the catalyst for Ergomed’s sector growth?
Life sciences companies are seeking ways to improve R&D productivity, increase the efficiency of its operations, rationalise spending on sales and marketing and enhance financial performance. In the previous year, the industry endured negative growth of -46.63%, underperforming the UK market growth of 13.50%. Ergomed lags the pack with its negative growth rate of -83.13% over the past year, which indicates the company will be growing at a slower pace than its life sciences peers. As the company trails the rest of the industry in terms of growth, Ergomed may also be a cheaper stock relative to its peers.
Is Ergomed and the sector relatively cheap?
Life sciences companies are typically trading at a PE of 39.96x, above the broader UK stock market PE of 16.44x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 9.46% compared to the market’s 12.14%, which may be indicative of past headwinds. On the stock-level, Ergomed is trading at a higher PE ratio of 230x, making it more expensive than the average life sciences stock. In terms of returns, Ergomed generated 0.89% in the past year, which is 8.57% below the life sciences sector.
Next Steps:
Ergomed has been a life sciences industry laggard in the past year. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. If Ergomed has been on your watchlist for a while, now may be the best time to enter into the stock. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the healthcare sector. However, before you make a decision on the stock, I suggest you look at Ergomed’s fundamentals in order to build a holistic investment thesis.