Shares in liver cancer treatment specialist Sirtex Medical Limited (ASX: SRX) lifted around 3% higher today after the company reaffirmed guidance for double-digit dose sales growth in financial year 2017.
The problem for forward-looking investors is that "double digit" is a wide guidance range and the share price is likely to remain volatile due to uncertainty around FY17's underlying growth rate. In financial year 2016 Sirtex delivered dose sales growth of 16.4% with North America the top performing region, and if the company is able to match or beat this level in the current financial year the shares are likely to rocket higher over 2017.
The company is also due to report the results of three separate clinical trials named FOXFIRE, SARAH and SIR v NIB over the course of 2017 and investor excitement is likely to add to the share price volatility. All three trials are designed to demonstrate the efficacy of its radioactive micro-spheres in treating different forms of cancer. The company is also investing in other longer-dated studies investigating possible treatments for kidney cancer and rare forms of primary liver cancer.
Positive clinical results in 2017 or beyond could see dose sales growth expand rapidly and the prospect of fast-rising profits over the medium term is likely to provide additional support to the share price.
Outlook
The company ticks the boxes as a growth investment with a mountain of cash on its balance sheet giving it ample opportunity to invest and the potential to grow into a much larger business over the next decade or more.
At $30 per share it trades on around 25x analysts' estimates for FY17's earnings per share, which looks reasonable value given the attractive growth outlook for the underlying business. When you factor in the potential for upside surprises in the form of positive trial results the stock looks even better value for investors prepared to take on more risk in the pursuit of market-thumping returns.
Sirtex does have competition from the likes of UK-based and FTSE-listed BTG Therasphere and the stock is vulnerable to price falls if underlying dose sales growth starts to slowdown significantly.
Private healthcare related stocks have been under pressure on the ASX this week after hospital operator Healthscope Ltd (ASX: HSO) reported soft revenue growth across its Australian hospitals. Healthscope's weak result has dragged the price of share market darling Ramsay Health Care Limited (ASX: RHC) down with it, as investors adjust their expectations for growth rates across the private hospital operators.
