Local investors have generated enormous returns from the medical device manufacturing industry in recent years, and that has certainly been the case with Fisher & Paykel Healthcare Corp Ltd (ASX: FPH).
Fisher & Paykel Healthcare Corp is engaged in the design, development, manufacturing and marketing of products for the treatment of various sleep-related breathing disorders, including obstructive sleep apnea.
Sleep apnea is a condition in which the walls of the throat come together during sleep, thus impacting the sufferer's breathing. The person suffering from this condition can experience severe drowsiness during the day (increasing the risk of a motor accident), while there is also an increase in potential for heart attack and stroke.
Indeed, many sufferers aren't even aware that this is happening overnight, although it is predicted that 5% of Australians do have the condition (thus creating an enormous market for companies like Fisher & Paykel Healthcare Corp).
Since mid-2012, the company's shares have risen a remarkable 333%, compared to a 34% gain from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), while it is up 48% over the last 12 months alone.
Such strong returns aren't all that surprising either when you consider the company's strong earnings to date. In fact, its 2015 Annual Report shows an 8% increase in operating revenue with a 252 basis point improvement in the gross margin for the year. Net profit after tax (NPAT) also grew 17% with operating profit up a remarkable 19%.
As sleep apnea becomes a more recognised condition around the world, I expect Fisher & Paykel will continue benefiting long into the future. Before investors consider buying however, they should make sure to compare its prospects with those of rivals ResMed Inc. (CHESS) (ASX: RMD) and Somnomed Limited (ASX: SOM).
Which should you buy?
Personally, I think SomnoMed could be the greatest buy of the three at today's prices.
SomnoMed is considerably smaller than either Fisher & Paykel or ResMed, giving it the potential to grow earnings at a far more rapid clip. It has been said that its products aren't as effective as those of either of its larger rivals, but they are considerably cheaper and less invasive making compliance more likely.
It is this factor that could give SomnoMed the edge over its competitors. Compliance is extremely important and doctors treating patients will want to know their patients are adhering to their prescribed treatment (especially in the case of truck drivers, where sleep apnea is quite prevalent). Indeed, SomnoMed has also recently been approved to sell its products with advanced compliance recording capabilities which should only increase its popularity amongst practitioners.
SomnoMed boasts a market capitalisation of just $136 million, which compares to the $3.6 billion and $11 billion market caps of Fisher & Paykel and ResMed, respectively.
