There’s a microcap stock that’s just posted an 11-fold increase in net profit that is still under the radar of most investors.
I am not talking about a speculative drug or technology developer. I am referring to hospital equipment supplier Paragon Care Ltd. (ASX: PGC).
There’s plenty to like about Paragon Care’s result although you couldn’t tell from today’s market reaction with the stock sinking 2%, or 1 cent, to 46 cents.
I am not surprised at the weak market reaction even as investors sent shares in Ramsay Health Care Limited (ASX: RHC) and Japara Healthcare Ltd (ASX: JHC) surging higher today on the back of pleasing results.
Sure, Paragon’s profit is coming off a low base of $70,000 in the first half of 2013-14, so the 1,044% surge to $840,000 in the six months to end December last year may not impress some, particularly given the tax benefit received.
However, make no mistake there is strong underlying growth in the business as earnings before interest, tax depreciation and amortisation (EBITDA) jumped four-fold to $1.6 million.
First half sales are up 65% to $13.5 million and management upped its fully franked interim dividend by 20% to 0.6 cents a share.
I am expecting the strong growth momentum to continue due to organic growth and acquisitions.
What’s more the second half should see even an even stronger performance with management forecasting full year revenue of between $30 million and $33 million and EBITDA of $3.5 million to $4 million.
This compares to Paragon’s 2013-14 revenue of $19.4 million and EBITDA of $1.8 million.
As to why you shouldn’t be taken aback from today’s lacklustre market reaction to Paragon Care, the stock has run up 42% over the past year and I am expecting it to take a breather before heading higher.
Is the stock looking fully valued after the big run? Paragon Care is trading on an estimated 2014-15 price earnings (P/E) multiple of around 15-16x when the healthcare sector is on a P/E well in excess of 20x.
The discount to the sector will likely widen given the growth projection for Paragon Care and investors are paid to wait as the stock is on a trailing yield of about 4.1% once franking credits are included.
Use any dip in Paragon Care’s share price as a buying opportunity. This stock is heading higher.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
Motley Fool contributor Brendon Lau owns shares in Paragon Care, Ramsay Healthcare and Japara. Follow me on Twitter (https://twitter.com/brenlau)
- These ASX stocks could be the next reporting season heroes – August 12, 2020 2:53pm
- The latest ASX stocks leading brokers are urging you to buy today – August 11, 2020 5:35pm
- These record breaking ASX stocks just got downgraded by top brokers – August 11, 2020 3:34pm