It's no secret that most investors prefer the "safety" of owning big-end-of-town stocks. Companies such as Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY) are much more likely to be on investors' radars than obscure, out-of-the-spotlight smaller companies such as Capitol Health Ltd (ASX: CAJ).
That's good news for savvy investors who are prepared to step outside of the "comfort zone" of large capitalisation stocks as it's these savvy investors who can then seize the opportunity to acquire small companies with long runways of growth ahead of them. In a sense, these investors are buying the Sonic and Primary of tomorrow!
A prime example…
Capitol Health provides medical diagnostic imaging services and has been busily consolidating its home market of Victoria. Capitol just released an impressive set of interim results for the half year ending 31 December 2014 where:
- Revenue grew 14% to $49.43 million
- Adjusted net profit before tax soared a staggering 69.9% to $7.3 million
- Earnings per share jumped 41.4% to 0.99 cents per share (cps)
- And the interim dividend was raised by 50% on the prior corresponding period to 0.6 cps fully franked
Positive outlook
Management provided guidance that it expects the diagnostic imaging industry to grow at roughly double the rate of GDP growth. That high growth rate is being driven by a number of factors including an expanding and ageing population and an emphasis on early detection and prevention.
These tailwinds bode well for Capitol to continue providing record results to shareholders in coming periods, however, this scenario doesn't necessarily mean investors should rush out and buy the stock today. While the growth prospects for Capitol are very good, with the stock trading on an annualised price-to-earnings ratio of approximately 46x, there is already a significant amount of future growth baked into the share price.
