Is there any value to be found in Fisher & Paykel Healthcare Corp Ltd?

Now trading on a P/E of 38, Fisher & Paykel Healthcare Corp Ltd (ASX:FPH) shares have come a long way in the past two years.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) first came to my attention as a potential outperformer early last year, when I felt that rising revenue combined with a modest price was likely to be a winner for shareholders.

Unfortunately, I didn't follow my own advice, and shares have since risen 80% on the back of continued strong performance and successive profit upgrades.

However, investing involves looking to the future and with tomorrow in mind, is there any value to be found in Fisher & Paykel shares today?

The company has a market capitalisation of A$4.2 billion, which looks quite lofty in light of the fact that forecast profit (after a recent upgrade) is expected to be between NZ$135-140 million for financial year 2016.

Fisher & Paykel thus trades on a Price to Earnings (P/E) ratio of around 38, and offers a 2.1%, unfranked dividend.

Investors who look beyond the above metrics may find more to like, however, with the New Zealand-based company continuing to innovate and offering impressive foreign currency exposure (99% of revenues come from outside of New Zealand).

A key benefit to a shareholding in Fisher & Paykel is the company's focus on developing efficient medical devices, i.e., devices that deliver a high level of care with fewer resources than would otherwise be required.

This efficiency comes in many forms (such as products which allow patients to be treated at home, instead of in the hospital) and will prove to be extraordinarily valuable as the burden of healthcare on national budgets increases.

Other ASX-listed companies like Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY) can expect to come under pressure as governments increasingly seek to stretch their healthcare dollars further. Indeed, some investors in the market are already factoring in an earnings hit for these businesses, thanks to the Medicare Benefits Scheme Review, hence their recent share price weakness.

Fisher & Paykel is not immune to regulatory or structural changes in its industry, but a focus on developing efficient devices lessens the risk. Another crucial benefit is the fact that FPH has already entered the US and European markets, meaning two major hurdles are behind the company. These markets are still large enough to provide plenty of growth opportunities, however.

Another benefit to long-term shareholders is possible increased outsourcing of manufacturing to countries like Mexico (which already produces 30% of FPH's products). The fact that 70% of products are still produced in New Zealand (a nation with relatively high wages like our own) is a testament to their value, but I expect management will seek to reduce costs over time by outsourcing.

Unfortunately, it looks as though much of the big gains in Fisher & Paykel have already been made. Despite a forecast 20% increase in profit for this year, I expect the next few years to deliver growth closer to the 10-15% range on a constant currency basis. As a result, the stock looks too expensive at today's prices, but I expect it will have a bright future and investors should keep it on their watchlist.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »