Is Volpara Health Technologies Ltd the next Pro Medicus Limited?

Shares in digital health technology and cancer screening startup Volpara Health Technologies Ltd (ASX: VHT) have move 8.5% higher to 38.5 cents in morning trade after the company provided a trading update.

The New Zealand-based group’s financial year ended on March 31 2017 and for the period it reported a 45% increase in total contract value signed to $NZ4.1 million, as its software-as-service (cloud-based) business model starts to generate attractive recurring revenues.

The company claims its software provides services to breast imaging centres “via the automated assessment of breast x-rays” to help in the early detection of breast cancer.

The group’s primary target market for sales of its software is the huge number of U.S. mammography centres, with it now having 40 full-time staff (many in sales functions) across the U.S. and its Wellington headquarters.

For the last financial year the company reported a loss of NZ$9.6 million, including non-cash expenses of NZ$1 million, with cash on hand of NZ$12.9 million thanks partly to a recent NZ$10 million capital raising.

Importantly. management now believes it has the sales team in place to help it deliver accelerating revenue growth while keeping costs relatively fixed.


Overall, out of 1,000 or more speculative loss-making companies on the ASX seeking investor capital, Volpara looks like one of very few that may have a good chance of producing a spectacular return on invested capital.

The group is growing revenues at a nice clip with an attractive high-margin business model moving into a large addressable market. The real kicker is that its valuation remains sensible at $55 million, with the shares changing hands for 38.5 cents this morning.

If speculative investing is your thing Volpara looks like on the best bets on the ASX and you only have to consider the blockbuster success of rival cloud-based medical imaging business Pro Medicus Limited (ASX: PME) to see the potential of this business model if executed successfully.

Pro Medicus now has a market value over $500 million with its shares up 1,825% over the past five years thanks to its success in signing up large U.S. healthcare operators to its best-in-class medical imaging and patient records management system.

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

You can find Tom on Twitter @tommyr345

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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