MENU

Why I think this small cap is a good opportunity

With the ASX index trading at close to its all-time high since the GFC it may not be the best idea to buy index-like investments at today’s levels.

However, that doesn’t mean that all shares are expensive today. If you look in the right places you can find value. I think that National Veterinary Care Ltd (ASX: NVL) is trading at good value at $2.13.

What is it?

National Vet Care is the second largest veterinary clinic business in Australia and New Zealand with 66 clinics at the last count. It has a pet wellness program and also a clinic management & procurement service.

Why has the share price fallen?

The National Vet Care share price has fallen by around a third since the start of the year.

Some of the fall was related to the negativity affecting industry leader Greencross Limited (ASX: GXL), which reported that standalone vet clinics were facing difficulty.

However, National Vet Care then announced that revenue was below expectations in May and June, which subsequently affected the earnings before interest, tax, depreciation and amortisation (EBITDA) margin.

Still a lot to be positive about

National Vet Care was still predicting that revenue would be 25% higher in FY18 than FY17. It also predicted a further 25% revenue growth in FY19.

In that same update the company revealed that pet membership has increased by 72% since the start of the financial year to 18,500. The management service business has experienced growth of 23%.

The pet industry has been growing at a nice rate. The total value of the industry in Australia has reached $12 billion, which is up 42% since 2013. Around 62% of households have a pet, with 79% of dogs and 65% of cats going to the vet each year.

Australia’s cities are large and continue to grow, offering more potential sites for vets. Plus, the increase in density of living offers current vets more potential clients for the catchment area.

Advancing surgical and diagnostic procedures also offers more services that National Vet Care can offer to clients.

Foolish takeaway

If I make a guess of 11 cents of statutory earnings per share (EPS) for FY18, National Vet Care is trading at 19x FY18’s estimated earnings. If it grows EPS by more than 20% in FY19 then it’s trading with a PEG ratio of less than 1, which is attractive.

National Vet Care looks like a decent long-term buy to me at the current price. I may buy more depending on what the reaction is to the FY18 report and if management can give a positive outlook for FY19.

Another business that looks good value at the current price is this top share which could grow profit by more than 30% this reporting season.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

Click here it's FREE!

Motley Fool contributor Tristan Harrison owns shares of Greencross Limited and NATVETCARE FPO. The Motley Fool Australia owns shares of and has recommended Greencross Limited. The Motley Fool Australia owns shares of NATVETCARE FPO. 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.