MediNet Group Limited (SEHK:8161), a HKDHK$90.48M 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, a relatively muted growth of 6.91% in the upcoming year , and a whopping growth of 44.90% over the next couple of years. This rate is larger than the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether MediNet Group is lagging or leading in the industry. Check out our latest analysis for MediNet Group
What’s the catalyst for MediNet Group’s sector growth?
Providers that are finding it harder to profit from further cost and operational efficiencies after picking the low-hanging fruit are beginning to turn their attention to more transformative initiatives to bend the cost curve. In the previous year, the industry saw growth in the teens, beating the Hong Kong market growth of 11.29%. MediNet Group 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 MediNet Group may be trading cheaper than its peers.
Is MediNet Group and the sector relatively cheap?
Healthcare companies are typically trading at a PE of 28x, higher than the rest of the Hong Kong stock market PE of 14x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 10.70% on equities compared to the market’s 10.07%. Since MediNet Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MediNet Group’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MediNet Group has been a healthcare provider industry laggard in the past year. If your initial investment thesis is around the growth prospects of MediNet Group, there are other healthcare provider companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how MediNet Group fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If MediNet Group 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 provider 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 MediNet Group’s future cash flows in order to assess whether the stock is trading at a reasonable price.