Neurotech International Limited (ASX:NTI), a AUDA$17.21M small-cap, is a healthcare company operating in an industry, which faces more complex and interdependent challenges, requiring multi-pronged, collaborative, and technology-enabled business models. Healthcare analysts are forecasting for the entire industry, a positive double-digit growth of 14.76% in the upcoming year , and a whopping growth of 42.00% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether NTI is lagging or leading in the industry. See our latest analysis for NTI

What’s the catalyst for NTI’s sector growth?

Integration with technology for more personalized and data-driven equipment, underpinning healthcare ‘internet of things’ has been a structural shift for the healthcare equipment providers. Over the past year, the industry saw growth of 0.96%, though still underperforming the wider Australian stock market. NTI lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means NTI may be trading cheaper than its peers.

Is NTI and the sector relatively cheap?

The healthcare sector’s PE is currently hovering around 28x, higher than the rest of the Australian stock market PE of 17x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 18.44% compared to the market’s 11.92%, which may be indicative of past tailwinds. Since NTI’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge NTI’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? NTI recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto NTI as part of your portfolio. However, if you’re relatively concentrated in healthcare equipment, you may want to value NTI based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If NTI has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the healthcare equipment industry. Before you make a decision on the stock, take a look at NTI’s cash flows and assess whether the stock is trading at a fair price.