Every Australian Share Investor is looking for Growth ASX Shares. Share Price Growth is Share Price growth, but what do you pay for your ASX shares? High priced growth ASX stocks are all vulnerable to changing sentiment, but if you can ride even one winner, you should end up way ahead. How do you reduce your share risk?
ASX Growth Stock Tips:What our research analysts are looking for
What is important is the combination of the sales multiple and the prospective sales growth.
Under the Radar investigated a small cap med-tech ASX stock we were interested in, Alcidion (ALC), because of its growth potential. We thought our small cap Australian Stock Report subscribers would be interested in our share tip and analysis.
Are we recommending Alcidion (ALC) as an ASX Stock to buy?
Last month the small cap raised $16.2m at 18 cents a share from institutions to “accelerate its growth strategy”. It must be growth, right?
Certainly, it has an interesting story. But interesting stories are not enough to justify spending your hard earned money on. You would often be better off buying a good novel.
After this capital raising and some initial success, the ASX small cap healthcare information systems specialist is now cashed up and trying convert itself into a “software as a service” money making machine.
The ASX small cap has always had e-health diagnostic technology. Its problem was that it didn’t have any distribution. Put another way, it didn’t have relationships with big payers like hospitals. Then in April last year, the company was effectively (reverse) taken over by a smaller entity MKM Health, whose CEO Kate Quirke is now CEO of Alcidion. MKM has experience in workflow management and patient care, providing hospitals with access to various products on platforms as an IT services provider. Now, instead of simply selling other vendors’ products, MKM has Alcidion’s diagnostic technology to sell.
During the 12 months to 30 June, the company produced revenues of just under $13m through installing products in Australia and the UK. In the current financial year the company should be cash flow breakeven.
Why doesn’t Under the Radar recommend the small cap company? For one thing, there is its market cap of over $200m which is large for a company that is barely profitable. Another thing is that its growth isn’t spectacular, considering it is coming from such a low base. There is a flip side to this, in that much of its growth is anticipated as being from software as a service revenues, which are stable, high margin and recurring. Still, it trades on a forecast sales multiple of 12 times and we don’t think that the distribution network that it has set up is there yet (maybe it will once it’s spent the $16m). Hospitals are very hard to access and the lead times for major sales can be very long (we have learned this the hard way!).
5 ASX Stock Tips: UNDER THE RADAR’S MED-TECH UNIVERSE of ASX Growth Stocks
We look at some of Under the Radar’s med-tech ASX small cap stock tips from the highest prospective growth down.
ASX Small Cap Stock Tip: Volpara Health Technology (VHT) produces a proprietary technology utilising AI to improve breast cancer screening and has succeeded in accessing the US market. This company’s sales multiple is very high, but so is its growth outlook. After a share price run subsequent to our spec buy share tip recommendation its market cap is getting big, but we continue to think it is good value relative to its potential.
ASX Small Cap Stock Tip: We have been more hesitant on the hemp stock Ecofibre (EOF) because of its large market cap. Volpara is less than half its size.
The share price of the ASX Small Cap Stock Tip ultra-sound sterilising specialist Nanosonics (NAN) reflects the law of large numbers. This ASX small cap stock has got a market valuation just under $2bn. Unless its total addressable market is much bigger than these other companies, the possibility of it continuing sales growth and maintaining its sales multiple gets exponentially more difficult. We recognise how powerful this small caps niche is and we’ve taken risk off the table by realising some gains. The growth paradigm isn’t broken, so we’re letting our profits run.
In terms the Green Whistle producer ASX Small Cap Stock Tip Medical Developments (MVP), we’ve had some success buying and selling this ASX small cap stock, but if you were simply going on the growth of 15% you would not be a buyer. So why are we giving this as an ASX stock tip? It’s the growth potential that you can’t see that is embedded in its system that has got our attention, having covered the ASX stock for a long time.
The is a company that has invested millions in a global distribution network. We admit that the size of the global market for the Penthrox Green Whistle is very difficult to analyse and will only become clear over time. Against this, you have FY19 sales growth in Australian ambulances of 38%, which is the kind of potential we’re talking about on a global basis. This potential has been delayed, which is why the estimates are subdued, but (another but) this stock can surprise on the upside because of its investment in distribution. There are dozens of countries where it is licenced to sell; where it has not sold anything yet, plus the potential from cracking the US and other markets.
We continue to rate this small cap stock as a Spec Buy, but it has had phenomenal share price appreciation due in no small part to its entry into the giant Chinese market, announced last month. We’ll be reviewing that stock in our next issue.
You might have noticed that there are six small cap stocks tips on our list. This is because we also cover the ASX small cap radiology business Capitol Health (CAJ), which is also a med-tech. CAJ was never a growth stock, but provides an interesting comparison. We purchased this ASX stock as a turnaround story, having been through some troubled times and have subsequently taken profits. It’s got pricing certainty for the next few years, although it’s only number six in the domestic market. As we make clear in our analysis, this company grows via acquisition.
Unfortunately acquisitions can (and more often than not do) go wrong. What we’re looking for is organic growth, which is the Holy Grail for all investors in companies big and small.