Some stocks can tend to give superior returns, if you have a longer holding time frame, especially since the initial phase of expansion, takes time to complete.
Healthcare Global Enterprises (HCG), is one such stock that has the potential to give superior returns. The company came out with an IPO recently, and the stock is down 20 per cent since listing and is trading at Rs 180.
Healhcare Global operates cancer hospitals under the brand name HCG and Milann fertility clinics. It had 15 cancer hospitals by the end of Dec 31, 2015.
The company's revenues have been growing at a stellar rate in the last few years, though the poor margins has led to a decline in profitability.
We believe that this is set to improve, because of a number of reasons. One if that the cash flow through the IPO, will help the company pay-off debts, which should boost the profitability.
The addition of critical equipment through the IPO should help push expansion and margins.
One of the biggest reasons to bet on the company is the underpenetrated healthcare services in the country. There are hardly any specialized niche players in the cancer business.
This leaves immense potential for the company, especially in cities, where it has a strong presence.
The ability for individuals to pay for services has also improved dramatically with insurance and higher income. This makes the model of the company a pretty sustainable one.
Coming to valuations, on the basis of EV/EBITDA, the company is significantly cheaper than other players including Narayana Hrudulaya or Apollo Hospitals .
At the current market price of Rs 180, the stock is available at EV/EBIDTA of 19 based on FY16 annualised earnings. Apollo Hospitals and Narayana Hrudayalaya are trading much higher at EV/EBIDTA of 25 times x and 34 times respectively based on FY16 earnings.
We believe that if you have the patience the stock can be a good play for the long term. Those who are looking at gains in just a few months, should avoid investing. This stock, because of the nature of its business, is more a long term play.So, us every opportunity in the stock to buy at declines.
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