Why I think Integral Diagnostics Ltd could be a buy

There's been a bit of interest lately in Integral Diagnostics Ltd (ASX:IDX) lately. Here's why…

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Integral Diagnostics Ltd (ASX: IDX) shareholders have enjoyed a good run over the past year with the company's share price gaining more than 80 per cent.

And the Integral Diagnostics share price continues to climb, adding another 1.32 per cent on Friday as the company released a positive update to its earnings guidance, with the company's shares now trading for about $2.31.

The Integral Diagnostics share price surged in late November amid news that Capitol Health Ltd (ASX: CJI)  made an-off market takeover offer, which represented a 30 per cent premium to Integral Diagnostics' share price at the time.

Integral Diagnostics has since written to Capitol Health citing issues with the bidder's statement and requested amendments.

The Integral Diagnostics board has recommended that shareholders take no action until Capital Health responds.

For financial year (FY) 2017 the healthcare company, which provides diagnostic imaging services for general practitioners and medical specialists, reported revenue of about $180 million, an increase of around 7 per cent.

Integral Diagnostics' reported a net profit after tax of about $15 million for FY 2017, down from $17 million recorded the year before, due to expansion costs which included the acquisition of South West MRI/Western District Radiology, according to the company.

At its AGM in November Integral Diagnostics announced it expected high-single-digit year-on-year growth in its net profit after tax.

On Friday, the company announced it now expects full-year net profit growth of around 20 per cent as a result of stronger revenue growth which eclipsed forecasts for November and December.

Integral Diagnostics, with a market cap of about $335 million, sees its shares change hands for about 21x earnings, while shares in another medical diagnostics company, Sonic Healthcare Limited (ASX: SHL), trade for about 23x earnings.

But Sonic Healthcare, with a market value of almost $10 billion, has not offered shareholders as lucrative returns over the past year as Integral Diagnostics.

Integral Diagnostics is expected to present its half-year results on Friday 19 January.

Motley Fool contributor Steve Holland has no position in any of the 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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