Is Nanosonics Ltd a buy after posting a 93% jump in sales?

The shares of infection control solutions provider Nanosonics Ltd. (ASX: NAN) have edged lower in morning trade despite the release of strong full year results. As well as posting a 93% jump in sales to a record $42.8 million, the company reported that a solid second half to the year means it is now in profit and cash flow positive for the first time.

A few highlights include:

  • Record full year sales of $42.8 million, up 93% on prior year
  • Maiden full year profit of $122,000, thanks to second half profit of $3.4 million.
  • First full year of positive free cash flow of $1.9 million.
  • Cash balance at year-end of $48.8 million.
  • North American installed base grew 74% to over 8,700. Global installed base now over 10,000 units.

Although the market reaction today has been rather subdued, I feel it is worth remembering that its share price has jumped around 20% in the last 30 days in anticipation of a strong full year result. With much of today’s result already priced in by the market, I feel it was very unlikely to surge higher.

But don’t let the market’s reaction fool you. In my opinion this is a fantastic result from the manufacturer and distributor of the trophon EPR ultrasound probe disinfector.

I was very impressed with the growth of the North American installed base. In a short space of time Nanosonics has captured 22% of the market and looks likely to build on this in FY 2017. Management has indicated that the increased awareness of the issues associated with human papillomavirus (HPV) has been a major contributor to the sales momentum in the region.

Clinical studies have shown that the toxic liquid disinfectants being used in high level disinfect ultrasound probes are completely ineffective against HPV, whereas the company’s trophon technology is completely effective.

This puts Nanosonics in a very strong position in my view. Especially with recent changes to guidelines by the Scottish National Health Service that support the use of Nanosonics’ disinfectant products. Management expects similar guidance will be published in England within the next few months. I expect other countries will also follow suit, which should prove supportive to long-term growth.

So should you invest in Nanosonics? With sales of $42.8 million and a market cap of $820 million it certainly is on the expensive side. But the company does have exceptional growth prospects, a high-quality product, a strong balance sheet, and an experienced and talented management team with executives from ResMed Inc. (CHESS) (ASX: RMD) and Cochlear Limited (ASX: COH). This might just go some way to justifying taking a small position in the company despite its extreme valuation.

Before making an investment in Nanosonics I would highly recommend taking a look to see if you own one of these three rotten ASX shares. If you need to make room in your portfolio these might be the ones to sell.

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Motley Fool contributor James Mickleboro 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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