During the last three months the Nanosonics Ltd. (ASX: NAN) share price has been amongst the best performers in the healthcare sector.
Its shares have lifted an impressive 26% during that time, compared to a solid 7% gain by the S&P/ASX 200 Health Care (Index: ^AXHJ) (ASX: XHJ).
Is it too late to buy Nanosonics shares?
While at approximately 34x trailing earnings, Nanosonics looks cheap compared to its peers given the strong growth it is exhibiting, it is worth noting that a big contributor to FY 2017's profit growth was an income tax benefit of $12.3 million.
This helped bump its full-year profit up to $26.2 million and will not be repeated in FY 2018.
By normalising the result, I estimate that Nanosonics shares are actually changing hands at about 92x trailing earnings.
I expect this to reduce to circa 80x earnings in FY 2018 if the company can continue growing its installed base strongly.
Is this a fair price to pay?
Any share trading at 80x forward earnings carries a certain amount of risk. However, I do feel that the reward on offer with Nanosonics makes it worth considering.
Despite the rapid adoption of its trophon system, management still estimates that it has only captured 12% of its estimated global market opportunity of 120,000 units.
Considering the product is widely regarded as the best in its class, I suspect Nanosonics has a significant runway for growth ahead of it that justifies the premium its shares trade at.
As such, I think it is a great buy and hold investment option in the industry alongside the likes of CSL Limited (ASX: CSL) and Ramsay Health Care Limited (ASX: RHC).
