The team at NovaPort Capital knows what they want out of the ASX shares they buy.
According to NovaPort senior analyst Tim Binsted, his team looks for 50% upside in share price over the coming three years.
And right now there is one stock that fits the bill.
"This was a stock that was trading at a discount to its earnings and valuation where we could see earnings growth over the forward period," he said in a NovaPort video.
"And we could see, relative to market, the possibility for multiple expansion, which brings the other leg to your investment upside — and that should get you 50% over the three years."
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Industry now structured to benefit the main ASX-listed player
The stock that Binsted is bullish on is fertility assistance provider Monash IVF Group Ltd (ASX: MVF).
Believe it or not, the business was a COVID beneficiary.
"We saw a boom in babies over that period with about a 30% growth in IVF cycles from 2021 over 2020," said Binsted.
"And while levels have moderated a bit from the peak, they're still strong and Monash's forward patient pipeline is very good."
A big tailwind for Monash is that the industry structure has changed in recent years.
Two private equity investors swooped on some of Monash's biggest rivals. One bought out ASX-listed rival Virtus and the other grabbed low-cost competitor Adora from its parent company Healius Ltd (ASX: HLS).
According to Binsted, Monash can flourish now that there's "a stable industry structure".
"The high pressure from low cost, which was pushing in and really damaging some margins around the edges from the low-cost full-service providers has now waned," he said.
"It's a much more stable market, better for pricing, and it's an environment where Monash has a chance to win market share."
Monash has about 20% market share, but this can increase with doctors who don't want to work under private equity that switch over.
Government support and overseas expansion
Out-of-pocket costs for IVF clients can be notoriously expensive, but Binsted notes that multiple governments are offering to subsidise some of the bills.
"You've got $2,000 of new funding from the good state of NSW, and we've also got the Vic liberals with that on their policy platform," he said.
"We've seen some additional funding for genetic testing coming through from the federal government for Medicare, which should flow into the pool of profits from the end of this year."
On the side, Monash also has overseas expansion that could be a source of future growth.
"We've got a growing Asia business, which is a secondary part of the story for Monash with a couple of clinics… the main one in Kuala Lumpur, which has got a couple of million dollars of earnings recovery that should come from COVID interruptions not repeating in the forward period."
The ultrasound arm is also seeing a tidy post-pandemic recovery.
"If you add that with the positive industry dynamics, the strong competitive background for Monash and the chance to win doctors, it's a really positive story for the small cap IVF sector for the next year and years afterwards."
The Monash share price is down more than 12% over the past year but is up 14.2% so far in 2023. The stock pays out a dividend yield of 4.15%.
