Is this small cap healthcare share in the buy zone after today’s update?

The Zenitas Healthcare Ltd (ASX: ZNT) share price will be one to watch on Tuesday after it released its fourth quarter update after the market closed on Monday.

According to the release, the growing home care and health services company saw cash receipts increase to approximately $33 million in the fourth quarter, leading to full-year cash receipts of $106.1 million.

During the final quarter the company generated operating cash flow of $3.65 million, bringing its full year operating cash flow to $10.9 million.

Zenitas Healthcare finished the year with a cash balance of just under $6.7 million, down from $10.9 million at the end of the last quarter. This was largely due to acquisitions made during the period.

As a result of this strong finish to the year, management has advised that Zenitas Healthcare is on course to hit its earnings before interest, tax, depreciation, and amortisation (EBITDA) guidance of between $13 million and $13.5 million prior to acquisition costs.

Should you invest?

If Zenitas Healthcare delivers on its guidance then it will mean that its shares are currently changing hands on an EV/EBITBA multiple of under 7x.

I don’t think this is particularly expensive for a company with such bright long-term growth prospects due to the tailwinds of Australia’s ageing population and a favourable Federal Budget.

As a result, I would class it as a buy along with fellow small cap healthcare shares such as Paragon Care Ltd (ASX: PGC) and Volpara Health Technologies Ltd (ASX: VHT).

However, I do have slight concerns about its cash balance and suspect there is a small possibility that a capital raising could be required in FY 2019. Though hopefully the many earnings accretive acquisitions it has made this year will make it cash flow positive in the near future to avoid this.

As well as Zenitas, I'm tipping these disruptive shares to be market-beaters in FY 2019.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Atlassian.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.