Conformis Inc (NASDAQ:CFMS), a US$58m small-cap, is a healthcare company operating in an industry, which continues to be affected by the sustained economic uncertainty and structural trends, such as an aging population, impacting the sector globally. Healthcare analysts are forecasting for the entire industry, a highly optimistic growth of 44% in the upcoming year , and a massive triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Conformis is a laggard or leader relative to its healthcare sector peers.
What’s the catalyst for Conformis’s sector growth?
Integration with technology for data-driven equipment, has been a structural shift for the equipment providers. In the previous year, the industry saw growth of 7.3%, though still underperforming the wider US stock market. Conformis leads the pack with its impressive earnings growth of 13% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 14% compared to the wider healthcare equipment sector growth hovering in the forties next year. As a future industry laggard in growth, Conformis may be a cheaper stock relative to its peers.
Is Conformis and the sector relatively cheap?
The healthcare sector’s PE is currently hovering around 50.37x, above the broader US stock market PE of 19.24x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 9.9% on equities compared to the market’s 10%. Since Conformis’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Conformis’s value is to assume the stock should be relatively in-line with its industry.
Conformis is a healthcare equipment industry laggard in terms of its future growth outlook. If Conformis has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than its healthcare peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Conformis’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has CFMS’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Conformis? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com.