Co-Diagnostics Inc (NASDAQ:CODX), a USD$63.50M small-cap, operates in the healthcare industry, which has experienced tailwinds from issues such as higher demand driven by an aging population and the increasing prevalence of diseases and comorbidities. Healthcare analysts are forecasting for the entire industry, a strong double-digit growth of 21.23% in the upcoming year , and a whopping growth of 68.64% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether CODX is a laggard or leader relative to its healthcare sector peers. View our latest analysis for Co-Diagnostics
What’s the catalyst for CODX’s sector growth?
Integration with technology for more personalized and data-driven equipment, underpinning healthcare ‘internet of things’ has been a structural shift for the healthcare equipment providers. In the previous year, the industry saw growth in the teens, beating the US market growth of 10.30%. CODX lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means CODX may be trading cheaper than its peers.
Is CODX and the sector relatively cheap?
The healthcare sector’s PE is currently hovering around 42x, above the broader US stock market PE of 22x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 11.31% on equities compared to the market’s 10.06%. Since CODX’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CODX’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? CODX has been a healthcare equipment industry laggard in the past year. If your initial investment thesis is around the growth prospects of CODX, there are other healthcare equipment companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how CODX fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If CODX has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its healthcare equipment peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at CODX’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Co-Diagnostics’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other healthcare stocks instead? Use our free playform to see my list of over 1000 other healthcare companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.