It’s Rare to See Healthcare Stocks This Hot

Investors may not have heard of Savaria Corp (TSX:SIS) or this other healthcare stock, gems hidden in plain sight.

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Savaria Corp (TSX:SIS) is a healthcare TSX company that’s been publicly trading for over a decade and absolutely hit a stride between 2016 and 2018. Its annual revenues increased from $120 to $180 million from 2016 to 2017, an increase of 50%, whereas the cost of sales to generate this revenue increased by 44%.

The first six months in 2018 have been even more impressive, with revenue increasing by 70% (while the cost of sales increased by the same percentage). Why all these numbers? Because quality revenues tend to forecast stock price appreciation.

Speaking of capital gains, shareholders were rewarded with a doubling of the stock price in 18 months as I had predicted, only to give some of those gains back in the last month by falling 20% from the high in recent weeks. Now that the stock price has moved down, both value and growth investors should have a look.

This company finds solutions for people with mobility challenges through specialized lifts, medical beds, and van conversions. The June 2017 acquisition of Span-America Medical Systems for $107 million is still working its way through the business but early indications are that this was quite a solid move. This acquisition gives Savaria access to U.S. institutional and government markets, selling medical beds and related equipment.

Viemed Healthcare, Inc. (TSX:WMD) is another TSX healthcare stock. At $270 million market cap, Viemed is smaller, but has been on an absolute tear, up 134% since January, even after you account for the recent 15% fall. Viemed provides respiratory products and services to customers with chronic lung disease.

The business helps people to stay in their own home and avoid hospital visits. The company went public on the venture exchange in 2017, but moved up to the TSX just a few months ago.

Viemed is such a hot stock that caution is warranted at this point for fear an investor could get burned. Coverage is thin, which is typical for a small cap: only a handful of analysts covered the August conference call. However, reading transcripts from the Q/A session is a good way to hear management answer questions on their toes.

During the August call, management referred to a KPMG report that describes home-based solutions for people with chronic lung disease as both healthier and a money saver. That makes sense and plays right into Viemed’s business model. Emboldened, management had this to say: “The mortality rates on our patients are going down 42%, and a relative mortality  rate – an absolute mortality rate of  16%, that translates into, every six patients  we put on therapy, we save a life”.

In a May press release, the company reported that it “grew its ventilator patient count by approximately 38% as compared to prior year first quarter.” Unfortunately, there is no mention of how many customers. Meanwhile, both fractional and absolute revenue numbers are provided: revenues were ~$14.1 million for the quarter and an increase by 41% compared to Q1 2017.

I’ll make a hand-waving statement that this stock price has climbed faster than revenues. Besides, there’s scant disclosed information to establish an earnings track record. The stock price has been bid up; yet at roughly 23 times the trailing price-to-earnings ratio is not exorbitant. What I’m saying is this; there’s lots to contend with for Viemed.

Foolish takeaway

These two companies fulfill important healthcare niches with demographic tailwinds. If I had to pick one, it would be Savaria as the growth roadmap appears more clear simply because its public track record is longer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brad Macintosh has no position in any of the stocks mentioned. The Motley Fool owns shares of Viemed Healthcare Inc.

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