Zecotek Photonics Inc (TSXV:ZMS), a CADCA$35.04M small-cap, operates in the healthcare industry, which faces key trends such as rising demand fuelled by an aging population and the growing prevalence of chronic diseases. Healthcare analysts are forecasting for the entire industry, an extremely elevated growth of 40.42% in the upcoming year , and a low 9.99% growth over the next couple of years. This rate is below the growth rate of the Canadian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether ZMS is a laggard or leader relative to its healthcare sector peers. View our latest analysis for Zecotek Photonics
What’s the catalyst for ZMS’s sector growth?
Personalized and data-driven equipment underpins the future advancement and structural shift in the healthcare equipment industry. In the past year, the industry delivered growth of 4.39%, though still underperforming the wider Canadian stock market. ZMS 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 ZMS may be trading cheaper than its peers.
Is ZMS and the sector relatively cheap?
The healthcare industry is trading at a PE ratio of 39x, above the broader Canadian stock market PE of 17x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 11.91% compared to the market’s 9.62%, which may be indicative of past tailwinds. Since ZMS’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ZMS’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? ZMS recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto ZMS as part of your portfolio. However, if you’re relatively concentrated in healthcare equipment, you may want to value ZMS based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If ZMS has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the healthcare equipment industry. Before you make a decision on the stock, take a look at ZMS’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Zecotek Photonics’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.