Downgrading F&P Healthcare
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At its interim result, Fisher & Paykel Healthcare posted strong growth in revenue and a 20% increase in profits. However, management expects revenue of NZ$1.07bn in 2019 and net profit of around NZ$205m-210m at constant exchange rates, up 8-11%. That's well below the average of 22% achieved over the past five years.
F&P Healthcare is a high-quality company and double-digit growth in profits is certainly possible over the next few years. However, the stock currently trades on a forward price-earnings ratio of around 42 - the highest price-earnings ratio of any major healthcare company on the ASX. The stock looks particularly expensive next to larger competitor ResMed's forward price-earnings ratio of 28. With slowing sales growth, we find it hard to justify the 50% premium.
F&P Healthcare may continue to grow as a company but the stock will be a poor investment if you overpay for that growth. With the stock up 17% since the interim result and now trading above our Sell price of $14, we're downgrading to SELL.
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