The Motley Fool

Why Azure Healthcare Ltd looks a great buy at current prices

With 8,500 sites globally Azure Healthcare Ltd (ASX: AZV) is establishing itself as a progressive manufacturer and provider of clinical workflow management systems in hospitals and healthcare facilities. Its flagship product is Tacera and the company is busy broadening its range into related areas.

In Australia Azure has 50% of the aged care market and 35% of acute care. Initial installation (including software) prices per bed are approximately $4,000 in acute care and $700 in aged care. Once installed annuity style income is derived from service agreements, software upgrades etc. The major competitor in Australia is Hills Industries, although Azure’s range and quality is regarded as superior.

Having now established two manufacturing operations in the USA, Azure Healthcare is making inroads into the high growth North American markets. Take up rates have been promising and there is every indication the Americas will prove very rewarding for this company. In addition Azure Healthcare has operations in Asia and Europe and further growth can be expected in these regions.

In FY2014, Azure’s revenues increased by 40% and net profit 300% (off a low base). Presently selling at 48c, Azure is on a PE multiple of 23.5 – however this is no mature industrial stock, and I prefer to use the PEG ratio when looking at such a company (the PEG ratio is derived from dividing the price earnings ratio by the expected growth in earnings).

Using fairly conservative assumptions (no change in A$; offshore growth of 30%+pa; domestic growth of 12%pa; more comprehensive alliances / distribution arrangements and increased percentage of higher margin software sales from existing sites) – net profit can be expected to increase by 27%+pa over the next few years. If realised this places Azure on a current PEG ratio of .87 (normally anything below 1 indicates prospectively good value).

Another thing I like about this company is that both R&D and set-up costs are expensed rather than capitalised – this is a conservative treatment and relatively few companies do it. In my opinion Azure Healthcare has an attractive PEG ratio, no debt and strong growth expectations – all ingredients for a good buy.

Azure might be the type of stock to catch Warren Buffett's eye! Discover a Billionaire's Investing Secrets – and 2 New ASX Ideas for You

Discover the investing secrets of $60 BILLION man Warren Buffett -- widely recognised as the world's greatest investor. Plus, you'll get two brand new ASX ideas! Your copy of The Motley Fool's brand-new report "The Wisdom of Warren Buffett -- Plus 2 ASX Shares Buffett Could Love" is FREE when you click here.

Motley Fool contributor Peter Andersen owns shares in Azure Healthcare Ltd

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.