The Nanosonics Ltd (ASX: NAN) share price has been a very strong performer this week.
Since the start of the week, the infection prevention company's shares have jumped 20%.
This means the Nanosonics share price is now up 32% month to date.
Why is the Nanosonics share price rocketing higher?
Investors have been bidding the Nanosonics share price higher this week following the release of its full year results and the announcement of an upcoming new product.
In FY 2021, Nanosonics reported a 3% increase in revenue to $103.1 million and a 15% decline in net profit after tax to $8.6 million. The latter was notably better than the market was expecting thanks to a strong second half.
But arguably giving the Nanosonics share price the biggest lift was the announcement of another new product – Nanosonics Coris.
This new platform, which is expected to be launched in calendar year 2023, is for cleaning flexible endoscopes.
Management notes that more healthcare-associated outbreaks have been linked to contaminated endoscopes than any other medical device. Each year there are over 60 million flexible endoscopy procedures being conducted across the United States and the five largest markets in Europe.
Is it too late to invest?
Unfortunately, the team at Goldman Sachs believe the Nanosonics share price is overvalued at the current level.
According to a note this morning, the broker has retained its sell rating and cut its price target to $4.40.
Based on the current Nanosonics share price, this implies potential downside of 37% over the next 12 months.
What did the broker say?
Goldman notes that the Nanosonics share price is trading on very lofty multiples based on its forecasts.
It commented: "FY22 revenue guidance for 'double digit growth' was not a material surprise against a heavily Covid-impacted year (consensus +27%). However, NAN now expects gross margins to decline meaningfully from 78% towards 75% as the sales mix continues to normalise (consensus 78%), and management confirmed that new opex guidance of $90m (consensus $80m) should be considered a structural increase."
"We post FY22/23E sales upgrades of +6/+8% to factor the FY21 beat and FX gains, but incorporating new cost/margin guidance drives (19)/(25)% downgrades to our FY22/FY23E EBITDA forecasts, and a (11)% reduction in our TP to $4.40. Although this stock has not historically traded on near-term multiples, posting these downgrades drives 2022E trading multiples up to 125x EBITDA (180x P/E) valuations which would ordinarily be associated with much higher growth profiles (we now forecast sales/earnings CAGRs of +8%/+15 from FY22-25E)," it added.
Goldman also warned investors not to get too excited by the new product launch due to the potential for further delays. Particularly given the company's track record.
It said: "Furthermore, whilst the market may re-calibrate launch expectations from FY22 to CY23, we would assume a low degree of confidence in that time frame given the amount of progress required and the company's track record to date (7+ delays and currently 4+ years later than planned)."
