The Nanosonics share price is up 50% in 2019: Is it still a buy?

The Nanosonics Limited (ASX: NAN) share price has surged almost 50% so far in 2019, with the latest jump due to pleasing first-half FY19 results released on. Is it still a buy?

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The Nanosonics Limited (ASX: NAN) share price has surged almost 50% so far in 2019, with the latest jump due to pleasing first-half FY19 results released on.  The biotech company hit a 52-week high of $4.31 on Tuesday, before closing 3.19% higher for the session at $4.21.

Nanosonics is an ASX200 listed healthcare company that specialises in the development and commercialisation of infection control solutions.  It has a global footprint and is approved for sale across most major markets. The company has been growing steadily over the past five years but is it still a buy?

Earnings review

Its global installed base of Trophon devices grew to 19.3 thousand by FY2019 H1 with continued growth expected at a similar rate.  The total opportunity for installed bases is currently estimated to be 120k, meaning only 16% of the total market has been penetrated.

Total first-half revenue in FY19 H1 was $40.7 million, up 36% on the prior corresponding period.  Operating profit before tax of $11 million represented 195% on the prior corresponding period and an impressive 493% on FY2018 H2.

A key highlight from the half was the re-negotiated distribution agreement with General Electric Company (NYSE: GE) being expanded to include: Denmark, Finland, Spain, and Portugal.

Nanosonics is set to receive a new earnings stream in the next few years, as there is a significant replacement/upgrade opportunity for customers to the Trophon2 device as the first-generation product ages beyond five years.  This opportunity is set to start in the current financial year but the major demand through this stream will come in 2-3 years.

The pleasing result is backed up by a solid outlook, as installed bases are to grow at a steady rate.  Nanosonics expects strong adoption of its product in the United Kingdom and is expecting new health guidelines in Germany and France to further push demand.

Nanosonics continues to sit at an astronomical P/E ratio, despite posting impressive earnings figures as investors price in further growth.  Another key risk continues to be that Nanosonics only focuses on one area with one major product, so the introduction of an equivalent competing product could disrupt its growth trajectory.

Foolish Takeaway

Nanosonics is a small cap share that could be well worth adding to your portfolio and holding for the long haul.  It provides a unique product and continues to receive tailwinds via changes to regulation in disinfection from different parts of the world.

The Nanosonics share price can be susceptible to shocks due to its high P/E so I would consider waiting for a dip before jumping in.

Motley Fool contributor Michael Guinery owns shares in Nanosonics Limited. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. 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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