TearLab Corporation (NASDAQ:TEAR), a USD$8.15M small-cap, is a healthcare company operating in an industry, which faces more complex and interdependent challenges, requiring multi-pronged, collaborative, and technology-enabled business models. Healthcare analysts are forecasting for the entire industry, a positive double-digit growth of 23.05% in the upcoming year, and an enormous growth of 52.15% 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. Today, I will analyse the industry outlook, as well as evaluate whether TEAR is lagging or leading in the industry. See our latest analysis for TEAR
What’s the catalyst for TEAR'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 of 5.19%, beating the US market growth of 4.49%. TEAR leads the pack with its impressive earnings growth of 61.03% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with TEAR poised to deliver a 27.71% growth over the next couple of years.
Is TEAR and the sector relatively cheap?
Healthcare companies are typically trading at a PE of 43x, above the broader 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 10.98% on equities compared to the market’s 9.99%. Since TEAR’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge TEAR’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? TEAR’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto TEAR as part of your portfolio. However, if you’re relatively concentrated in healthcare equipment, you may want to value TEAR based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If TEAR has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the healthcare equipment industry. Before you make a decision on the stock, take a look at TEAR’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into TearLab'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.