Why the Nanosonics Ltd. share price is going gangbusters today

Credit: Brogan & Partners

Shares of Nanosonics Ltd. (ASX: NAN) soared as much as 9.4% to a high of $2.68 this morning after the company released its quarterly sales report. The shares have since trended lower but are still up 7.8%.

In case you’re unfamiliar with the business, Nanosonics is involved in the research and development of products designed to assist with decontamination and infection control in the medical industry.

Its primary product is the Trophon EPR, which is designed to disinfect ultrasound probes which have historically been the cause of healthcare acquired infections (HAI) such as bacteria, fungi and viruses, many of which can prove to be fatal.

In today’s update, the company said it had achieved record sales of $15.1 million during the quarter, which was a 25% lift on the prior quarter. This was driven by continued strong adoption in the North America market where it now has a total installed base of over 8,700 units (with over 10,000 units worldwide).

What was also pleasing was the strength of the fourth-quarter results compared to the rest of the year. Full-year sales were up 93% to $42.8 million, while the company also noted it was entering into the new financial year with “an encouraging level of forward orders”, which suggests there is still plenty more growth to come.

Nanosonics also improved its cash position during the quarter by $4.6 million. It had a total of $48.8 million cash on hand as at the end of the period thanks to an inflow of $4.7 million of cash from operations, which gives it plenty of flexibility to continue its strategic growth.

Indeed, Nanosonics is a quality business, but investors – particularly those who do not have a high tolerance for risk – do need to be mindful of how much they’re paying for shares.

The company boasts a market value north of $700 million, which is more than 16x full-year sales, while the company isn’t expected to become profitable until next year. According to Yahoo! Finance, the average analyst estimate is for earnings per share (EPS) of 3 cents in financial year 2017.

Investors wanting to invest in the healthcare sector may want to take a look at other businesses such as Somnomed Limited (ASX: SOM) or CSL Limited (ASX: CSL) before making a decision.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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