Nanosonics Ltd. (ASX: NAN) is a leading infection control specialist which has seen exceptionally strong share price growth in recent times. Since the beginning of 2019, the Nanosonics share price has gone up by an incredible 170%.
Nanosonics now has a market capitalisation of over $2 billion and is a member of the S&P/ASX 200 Index (INDEXASX: XJO).
What does Nanosonics do?
Nanosonics’ core product is its Trophon device, a high-level disinfection machine that has been globally recognised as one of the leaders in ultrasound probe disinfection. This product provides healthcare organisations with a safe and versatile way to prevent ultrasound probe cross-infection.
Nanosonics has strong geographic diversification, distributing its products in 21 countries through either direct operations or via distributor partners. Over 90% of Nanosonics’ revenue is derived offshore, with most of that generated in the US and only about 5% generated within the Asia Pacific region.
Growing global demand
There is a growing trend across the world for stricter ultrasound probe reprocessing guidelines. Healthcare acquired infections (HAIs) are gaining an increasing focus as a health issue.
What’s more, the general need for more stringent health standards within hospitals has never been put under the spotlight more than following the spread of the coronavirus.
Clever and lucrative business model
The amount of money that Nanosonics makes on each machine is relatively small as it only sells a Trophon machine to a customer for somewhere above cost. However, once the one-off sale is completed, the customer is then locked in for around 4-5 years of purchasing patented and exclusive consumable products and servicing, supplied by Nanosonics. Customers are also attracted to this less capital-intensive model which doesn’t require a high upfront cost.
Over the life of this product, consumables make up around 70% of the total revenue. This helps provide Nanosonics with a high gross profit margin that currently sits at around 75%.
Strong recent growth
In FY19, sales increased impressively by 39% to $84.3 million. Strong demand saw the company’s installed base grow 18% in FY19 to 20,930 units. This led to a significant boost to revenue due to a combination of unit sales and the recurring revenues from the required consumables.
Geographically in FY19, Nanosonics expanded into a number of new markets including the Nordics, Spain, Portugal, Switzerland, and Israel.
Nanosonics has significant further growth potential as it currently only has around one-sixth of the overall market in which it operates.
During FY20, Nanosonics anticipates continued growth in installed base in North America with FY20 adoption similar to FY19. Significant investments are being made in research and development with investment scheduled to increase by 32% to $15 million in FY20.
The coming release of a new significant product should boost further growth for Nanosonics. Commercial introduction of this new product is set to commence in FY21, with a launch in a number of international markets throughout the first half of FY21.
Nanosonics has a clever, lucrative and proven business model, with an expanding range of successful products in a fast-growing segment of the healthcare industry.
I predict further strong growth over the next three to five years. Despite strong recent share price growth over the past year, I don’t think it’s too late to acquire shares in this ASX health-technology company, so long as you’re prepared to take a long-term outlook.
The post Why I would buy shares of this ASX 200 health-technology company appeared first on Motley Fool Australia.
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Phil Harpur owns shares of Nanosonics Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nanosonics Limited. The Motley Fool Australia has recommended Nanosonics Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020