Are Nanosonics (ASX:NAN) shares a buy? Here’s what Motley Fool analyst Andrew Legget says

What’s the case for buying Nanosonics shares now?

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The Nanosonics Ltd (ASX: NAN) share price has failed to deliver a positive return for shareholders so far this year.

With hospitals inundated globally as a result of the COVID-19 pandemic, the infection technology company has struggled to promote its patented Trophon product. Despite this, the investing team at The Motley Fool Australia thinks there’s a lot to like about the business, making it a compelling opportunity.

In a discussion between Motley Fool Australia analyst Andrew Legget and our chief investment officer Scott Phillips, the COVID-19 headwind could be set to morph into a long-term tailwind for the infection technology company.

Let’s jump into the reasoning behind a positive outlook for Nanosonics shares on the ASX.

Renewed emphasis on sterilisation could help Nanosonics shares

While restrictions on surgical procedures may have impacted the performance of Nanosonics on the ASX in recent years, the outlook could be starting to shift. An indication of this is the company’s forecast for double-digit revenue growth in FY2022.

This increase would be from a higher number of installed devices and an uptick in consumables used across all regions — but where is this demand coming from?

Motley Fool analyst Andrew Legget recently offered an explanation, saying:

Hospitals have been busy, you’ve probably got all these COVID-related things to look after in the middle of a pandemic, the last thing you want to do is speak to a salesperson offering you an ultrasound disinfectant machine. But, I do expect that even the COVID pandemic will help in the long term because it did place a lot of focus on sterilisation.

A heightened focus on sterilisation might act as a catalyst to drive further Trophon sales. The major positive is that this phenomenon is global. Rather than one country seeing an increased need for disinfection protocols, it is essentially the entire world.

Attractive business model

In laying out the investment case for Nanosonics shares, Legget highlights the lucrative business model. It’s called the razor and blade model, and we’ve all likely fallen for it before. Legget explains:

You sell the device really cheap. Then once that device is installed and part of the process, then you open up the rivers of gold. Which are these consumable devices, which have extremely high margins. Every time you do a procedure that requires the usage of a Trophon device, you’re paying for a consumerable liquid that has really high margins.

Another bullish trait of the ASX-listed Nanosonics story is its position in the market. The company’s current installed base of devices is 26,760. However, management believes the market could be more than 100,000 machines.

On this note, Legget comments on the competition within the industry, saying:

I’ve had a look… it’s not easy to find competitors to what Nanosonics does. Also, the ones that you do find are not as complete a solution as what Nanosonics does. Nanonsonics, I said before, it is the gold standard.

In summary, Legget considers Nanosonics shares a beneficiary of increased importance on disinfection. The combination of its lucrative business model and lack of competition presents an opportunity for a very strong business.

The opinions expressed in this article were as at November 2021 and may change over time.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Nanosonics Limited. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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