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Brokers think this under-the-radar small-cap could offer blockbuster returns

Credit: Unsplash

One small-cap healthcare company has been posting such consistently strong sales growth that it is now widely liked by multiple brokers including Morgans and Wilson HTM.

In fact Morgans and Wilson HTM have 12-month price targets more than 20% and 37% respectively above the $2.55 price that shares are currently changing hands for, although Wilsons think the stock could be worth around 140% more on an “un-risked” valuation basis.

The business also enjoys the tailwinds of the healthcare sector and large global markets for its sleep treatments products that have made larger rivals like ResMed Inc. (CHESSS) true global superstars by raking in annual revenues of more than $2 billion.

The up-and-coming business the brokers like has even chosen a similar name to its larger sleep treatment rival as Somnomed Limited (ASX: SOM). The junior healthcare star recently posted 30.3% growth in direct sales revenues for its flagship sleep treatment device named SomnoDent.

Total sales were $18.05 million for the six months ending December 31 2015 and appear on a strong global growth trajectory as SomnoMed’s sales advantage remains the user-friendly nature of its medical devices that are designed to improve the sleep of its patients.

Wilsons summarising that: “SomnoMed offers investors a unique exposure to the sleep disordered breathing market, in which the company has patiently built the evidence base and market channels for its products to succeed.”

Another junior medical device business on a rocketing growth trajectory thanks largely to sales in the US is disinfectant device seller Nanosonics Ltd (ASX: NAN). Its shares are up 50% over the last six months after the company also posted strong half-year sales alongside a promising outlook.

On current valuations I think it’s tough to choose between these two junior healthcare stars, as both retain potentially excellent long-term outlooks, although the Nanosonics share price may have got slightly ahead of itself.

For that reason I would agree with the brokers and rate SomnoMed as a buy at current valuations.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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.

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