The S&P/ASX 200 Healthcare Index has returned a stellar 20% in the past 6 months, compared to just 5% for the ASX 200. Leading the charge are household names such as CSL Limited (ASX: CSL), Sonic Healthcare Limited (ASX: SHL) and Cochlear Limited (ASX: COH).
The 2 ASX companies below have delivered even more explosive share price gains and growth, but could they be too expensive?
Nanosonics Ltd (ASX: NAN)
Nanosonics shocked the market when its share price soared 30% after its FY19 announcement. Like most investors reading the FY19 figures, I thought the announcement was strong, but I did not imagine it was a 30%-increase-in-share-price type of strong.
There is the fantasy that Nanosonics will continue to snowball its growth trajectory to become the most dominant player in the ultrasound probe disinfector market. While the company's shares are expensive, I believe the company is looking good fundamentally, with its geographic push across multiple global regions. This includes an expanding distribution network with GE Healthcare covering areas of Europe, the ongoing Japanese market development and growing awareness in the Americas. Nanosonics has also held its share price gap up with good momentum behind it.
While I am a big fan of the company's expanding geographic reach and product, I would not be rushing to buy Nanosonics at today's prices. I believe the risk/reward at current price levels is not optimal, and would rather wait for a bigger discount.
Pro Medicus Limited (ASX: PME)
Pro Medicus has been relentless in terms of its share price gains. But this uptick all came to a grinding halt when it announced the sale of shares by its founder, resulting in its share price freefalling by more than 20% in a week. While I thought the share price was stabilising around the $29 mark, it staged two significant moves down on Tuesday and Wednesday.
In an open briefing in August to discuss the company's FY19 results, CEO Sam Hupert stated that the company's products are "well ahead" of competitors and commented that the enterprise imaging and radiology information systems software landscape did not have any players that have been "able to successfully bring out a streaming platform that works in large scale production like ours." Hupert showed confidence that pipeline remains strong, highlighting the large intake in RFP's (request for proposals) in the last part of calendar 2018 and first half of 2019.
I believe the combination of a cutting edge, marketing-leading product, strong pipeline and a consolidating share price paints a fair risk/reward scenario for Pro Medicus shares in the long term. However, the share price is not showing a bottom after the founder sell-down. I would rather buy a trending stock than try catch the knife on Pro Medicus.
