Sirtex Medical Limited posts strong margin growth: What you need to know

Sirtex Medical Limited (ASX:SRX) has wowed the market with its margin growth.

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Innovative cancer treatment specialist Sirtex Medical Limited (ASX: SRX) this morning posted a net profit of $40.3 million on revenues of $176.1 million for the financial year ending June 30 2015. The profit and revenue are up 69% and 36% respectively over the prior corresponding year.

The final dividend was lifted to 20 cents per share, up 43% over the prior year.

Underlying growth

The underlying picture of a growing healthcare business is illustrated by a 19.8% uplift in dose sales of its SIR-Spheres radiotherapy treatment over the prior year. All regions experienced double-digit sales growth, but the US remains the core market and the appreciating US dollar helped earnings grow much faster than revenues.

Margins received a handy uplift from the tailwinds of price rises in several key markets, the tumbling Aussie dollar and controlled growth in operating expenditures.

Healthcare stocks with growth outlooks and expanding margins tend to be salivated over by the professional community of healthcare analysts and the stock has climbed around 64% over the past year.

Today the stock has lifted some 10% in morning trade and I expect this is because the profit growth has so heavily outpaced the revenue growth in what is a traditional 'buy signal' for healthcare analysts all schooled the same way in assessing stocks.

The SIR-Spheres product still only penetrates a tiny proportion of what the company considers its addressable market globally. For example the company has made significant inroads into the US market (including the completion of an expended manufacturing facility in the US), but there appears to be ample opportunity to ramp up the distribution effort in Europe and Asia in particular.

Outlook

The future remains exciting for the business and it continues to promote the results of its SIRFLOX clinical trial to the global community of oncologists in an attempt to promote sales of its SIR-Spheres products. I suspect over time the clinical evidence and good publicity will translate into accelerated sales growth and this is a view shared by the business.

It also has several other major clinical trials in progress aimed at providing the evidence necessary to promote the use and sales of its SIR-Spheres product in the future.

Sirtex continues to tick the boxes as a long-term investment prospect and selling for $31 it trades on around 43x trailing earnings per share of 71.4 cents. In my opinion it remains one of the best growth prospects available to investors on the ASX today.

Motley Fool contributor Tom Richardson owns shares of Sirtex Medical Limited. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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