The Nanosonics Ltd. (ASX: NAN) share price is up nearly 65% in 2019. A great market opportunity, sticky business model and potential in overseas markets could possibly make Nanosonics the best growth stock on the ASX 200.
Market opportunity
Nanosonics is a growing Australian healthcare company focused on innovative technologies in infection control and decontamination. The company's two flagship products are the Trophon EPR and the Trophon 2, both of which are automated systems used to disinfect ultrasound probes.
Infection control and decontamination of ultrasound probes is becoming a global trend in order to reduce the avoidable spread of disease among patients. A recent clinical study in Japan found that 90% of ultrasound probes at a university hospital and ultrasound clinic were contaminated. Nanosonics looks to lead this movement by setting the standard in disinfection procedures by providing economical, non-toxic and rapid disinfection and sterilisation products.
Sticky business model
The Nanosonics business has been described as a 'razor-blade' model, as customers purchase the Trophon devices and then buy recurring consumables after. This sticky business model encourages high margins of profitability and recurring revenue. As more devices are installed, the greater the usage and demand for consumables which has great potential.
Impressive results
Nanosonics reported impressive first half results earlier this year which saw the share price rally strongly. Highlights of the report included record first-half sales revenue of $40.7 million, 36% higher than the year prior. Sales of Trophon devices increased 11% and contributed $16.4 million to revenue, whilst recurring consumables and services were up 59% generating $24.3 million in revenue. For the first half, 19,310 Trophon EPR systems were installed, up 20% from the previous year, and net profit after tax was up 221% to $7.1 million.
Nanosonics looks in good health fundamentally, expected earnings growth is 48% which is supported by revenue growth of 64%. This indicates that earnings are driven by the purchase of high margin products. The cash balance of Nanosonics grew to $71.3 million in the first half which is an excellent sign that debt is properly covered by the company.
Global growth
Nearly 90% of Trophon devices have been installed in the US as a result of a sales agreement Nanosonics has with General Electric Company (NYSE: GE). The company reported that global installations grew by 9% in the first half and announced a new agreement with GE Healthcare effective in 2019 that opens distribution to Denmark, Finland, Spain, Portugal, Sweden and Norway. Thanks to a strong balance sheet and solid cash flow, Nanosonics is primed to target other prospective markets including China, Japan and South Korea.
Foolish Takeaway
In my opinion, Nanosonics is a brilliant Australian company and one of the best growth stocks listed on the ASX. The company has a sticky business model with recurring revenues, a solid balance sheet and stable consumer base. Nanosonics also has great cash flow which allows it to take advantage of global market opportunities and continue research and development to further enhance its product pipeline.
