The Motley Fool

4 reasons to own Sirtex Medical Limited

Some of the best Australian companies that are internationally successful are in the healthcare sector. Their technologically advanced medical products and treatments show what Aussie innovators can do.

One of the standout performers is Sirtex Medical Limited (ASX: SRX). Its revenue has expanded almost 10 times in nine years, yet it may have a fair way more to grow as its success in the US continues and the Asian market is beginning to take off.

Its product is for the medical treatment of liver cancer, a type of cancer where radiology can’t be used because liver tissue is highly affected by radiation. The Sirtex treatment delivers very small doses of radiation directly to the cancer tissue without adversely damaging surrounding tissue.

Here are four reasons why the company is successful and could be a strong earner for your portfolio.

Profit margins and earnings growth

Its past record of earnings took a great step up in 2009 as its treatments took root in overseas markets. Now profit margins are on average about 20%. Earnings are expected to grow strongly over the next few years.

Solid returns performance

The company’s return on equity and capital are usually over 20%, so the premium it attracts for its products shows a sturdy performance that can build up shareholder returns well over time.

History of product sales growth

Sales of the treatment doses have grown uninterrupted over the past nine years. In the first half of FY2014, the number of doses sold in the US market was about six times more than the Asia Pacific region and was up 14.9% on 1H FY2013.

In the third quarter, dose sales growth in the US increased another 25.8% and Asia Pacific was up 8.6%.

Profits supporting growth

Investors would be pleased to know that ample profits are providing enough funds for growth without having to raise capital through issues. During its development stage, a dividend wasn’t regularly paid and the number of outstanding shares hasn’t really changed over the past nine years. That shows the success of the business model and product.

Foolish takeaway

The stock’s PE is about 41, so this quality company may not be at bargain prices. Over the long-term, potential earnings growth could reward patient investors who pick up positions when prices are less expensive.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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