Simulations Plus Inc (NASDAQ:SLP), a USD$273.10M small-cap, is a healthcare company operating in an industry, which faces advancements driving sector growth in areas such as implantable devices and treatment, robotic surgery and 3D printing. Healthcare analysts are forecasting for the entire industry, a positive double-digit growth of 20.42% in the upcoming year , and an enormous growth of 47.17% 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, as well as evaluate whether SLP is lagging or leading in the industry. Check out our latest analysis for Simulations Plus
What’s the catalyst for SLP’s sector growth?
New R&D methods and big data analytics are creating opportunities for innovations, however, stakeholders have been challenged to keep abreast of this structural shift while under pressure to cut costs. In the previous year, the industry saw growth in the teens, beating the US market growth of 10.30%. SLP leads the pack with its impressive earnings growth of 15.49% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at 19.15% over the next couple of years.
Is SLP and the sector relatively cheap?
The healthcare tech sector’s PE is currently hovering around 64x, higher than the rest of the US stock market PE of 22x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 8.78% on equities compared to the market’s 10.06%. On the stock-level, SLP is trading at a lower PE ratio of 47x, making it cheaper than the average healthcare tech stock. In terms of returns, SLP generated 23.85% in the past year, which is 15.07% over the healthcare tech sector.
What this means for you:
Are you a shareholder? SLP’s future growth prospect aligns with that of the broader market and its PE is below its healthcare peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of SLP, if you’re not already highly concentrated in the company.
Are you a potential investor? If SLP has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-aligned growth prospects may have not been fully priced into its shares given its lower PE ratio relative to its peers. Before you make the decision to buy, I recommend you look at other fundamentals factors and see whether there is a reason why the stock may be trading at a discount in the healthcare sector.
For a deeper dive into Simulations Plus’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.