3 small cap healthcare shares to watch

One area of the market that I think is a great place to look for small cap shares with strong growth potential is the healthcare sector.

This is because Australia’s population is both growing and ageing. In fact, the government estimates that by 2056 there will 8.7 million people over the age of 65 in Australia. This compares to 3.7 million Australians over the age of 65 in 2016.

This is likely to mean demand for healthcare services grows strongly for the next four decades, providing many companies in the sector with robust organic growth for a long time to come.

Three healthcare shares that I think are worth watching today are listed below. Here’s why I like them:

Paragon Care Ltd (ASX: PGC)

Paragon Care is a fast-growing provider of integrated services to the health and aged care markets. Due to the growth of these two markets, I believe it is well positioned to deliver above-average profit growth over the coming years. Especially after the company recently acquired no less than nine businesses following a $70 million capital raising. Management expects the performance of its base business and these nine acquisitions to allow it to achieve pro-forma FY 2018 revenue of approximately $220 million and EBITDA (before synergies) of around $32 million. This is a significant year-on-year increase.

Volpara Health Technologies Ltd (ASX: VHT)

One of the most exciting healthcare shares in my opinion would have to be Volpara Health Technologies. Its software, which provides breast imaging analytics and analysis, continues to grow in popularity in the United States and has now gained a market share of 3.2%. These market share gains have led to annual recurring revenues growing over 200% year-on-year in FY 2018. So with management aiming to grow its market share to 9% by the end of FY 2019, the next 12 months could be equally strong.

Zenitas Healthcare Ltd (ASX: ZNT)

One of the best ways to gain exposure to the ageing population thematic could be with Zenitas Healthcare’s shares. This is especially the case after the government recently pledged to support older Australians that wish to stay at home instead of going into aged care. As a growing home care and health services company, I think Zenitas could see demand for its services increase strongly from this decision. This could allow it to continue its solid profit growth for some time to come.

Like Volpara, here's another great long-term investment option in the software industry.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended VOLPARA FPO NZ. The Motley Fool Australia has recommended Paragon Care Limited and Zenitas Healthcare Ltd. 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 Scott Phillips.

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