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Why the Nanosonics Ltd share price is going gangbusters today

The Nanosonics Ltd (ASX: NAN) share price has climbed 6.7% to $3.36 this afternoon as investors continue to bid the company’s value higher on the basis of its strong growth outlook.

Nanonsonics sells market-leading specialist hospital disinfectant equipment to public or private healthcare facilities and hospitals in North American mainly, although recently it has been growing its sales into Western European markets as well.

The company has not released any price sensitive news to the market since February 2017 although the shares are up around 17% since then to give it a market value around of around $1 billion, with 297.7 million shares on issue.

A market value around $1 billion may sound big for a company with H1 FY 2017 sales of $36.1 million, although it did post an operating profit before tax of $10.3 million for the half-year period, which suggests this is a high-margin business with potential to grow for a long time.

Nanosonics is also in sound financial health with cash reserves of $56.9 million as at December 31 2016 to support its push to grow further globally, with estimates that it has only captured a small part of its addressable markets globally.

The medical device specialist also has an experienced management team, several of whom are former senior management members of high-quality hearing implant specialist Cochlear Limited (ASX: COH).

The operational experience gained helping grow Cochlear into a global medical device giant is likely to improve Nanosonics’ chances of succeeding in its stated ambitions.

Should you buy?

In my opinion despite its strong outlook Nanonsonics shares are expensive at $3.36 on nearly 14x annualised sales or 50x annualised operating profit.

Still, I would not be surprised if they perform well over the long term as the company appears to have ample opportunity to grow profits at strong rates. However, if sales growth does slow the stock is likely to come in for an almighty hiding.

If Nanosonics shares come down significantly in price you can count me in as a buyer, but for now I’ll watch from the sidelines given there are plenty of other opportunities to crush the market.

Why wait to crush the market?

Because this little known growth and dividend stock looks very cheap on today's valuations....

This company's dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

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Motley Fool contributor Tom Richardson owns shares of Cochlear Ltd.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of 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 Bruce Jackson.

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