Nanosonics Limited (ASX:NAN), a AUDA$838.03M small-cap, operates in the healthcare industry, which faces key trends such as rising demand fuelled by an aging population and the growing prevalence of chronic diseases. Healthcare analysts are forecasting for the entire industry, a strong double-digit growth of 14.82% in the upcoming year , and an enormous growth of 40.51% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Nanosonics is lagging or leading in the industry. Check out our latest analysis for Nanosonics
What’s the catalyst for Nanosonics’s sector growth?
Personalized and data-driven equipment underpins the future advancement and structural shift in the healthcare equipment industry. In the past year, the industry delivered growth of over 100%, beating the Australian market growth of 6.89%. Nanosonics leads the pack with its impressive earnings growth of over 100% last year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -53.37% compared to the wider healthcare equipment sector growth hovering in the teens next year.
Is Nanosonics and the sector relatively cheap?
Healthcare companies are typically trading at a PE of 32x, above the broader Australian stock market PE of 18x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 12.19% on equities compared to the market’s 11.87%. On the stock-level, Nanosonics is trading at a PE ratio of 32x, which is relatively in-line with the average healthcare equipment stock. In terms of returns, Nanosonics generated 36.35% in the past year, which is 24.16% over the healthcare equipment sector.
What this means for you:
Are you a shareholder? Nanosonics is a healthcare equipment industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of Nanosonics, there are other healthcare equipment companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how Nanosonics fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Nanosonics has been on your watchlist for a while, now may not be the best time to enter into the stock. Its growth is expected to be lower than its healthcare equipment peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the healthcare sector.