This four-bagger should continue to thrash GlaxoSmithKline plc

Advanced Medical Solutions Group(LSE: AMS) has an exciting growth story to tell with its share price up 305% in the last five years. The surgical and advanced woundcare specialist has just announced its interims for the six months to 30 June, but markets seem disappointed, with the stock down 3.52% at time of writing. However, I still expect it to continue thrashing more established healthcare sector players.

Advanced thinking

This morning's results show Advanced Medical Solutions revenues up an impressive 17% to £45.9m, or 8% at constant currency. Growth is particularly strong in the US, where revenues rose 52% to £9.1m, or 32% at constant currency. Sales of its LiquiBand topical tissue adhesives, RESORBA branded products and antimicrobial dressings were strong with CEO Chris Meredith saying the group's brands have made been boosted by the firm's marketing initiatives: "We remain optimistic about our organic growth prospects and our innovative R&D pipeline and continue to closely monitor and evaluate acquisition opportunities to capitalise on our strong financial and strategic position."

Advanced Medical Solutions has an impressive earnings per share (EPS) growth history given its volatile sector, with five years of consecutive growth and a forecast 10% in 2017 and 11% in 2018. Unsurprisingly the stock isn't cheap, trading at a forecast 37.9 times earnings, but the keyword here is pipeline, and on this front it has certainly done better than ailing pharmaceuticals giant GlaxoSmithKline(LSE: GSK).

SmithKline and fall

It is perhaps invidious to compare a £632m growth stock with a £73bn pharma behemoth, and of course nobody expects Glaxo to four-bag, like, ever. However, it would be nice if the share price had shown a little more pep - today's price of 1,490p is 15% below its 2013 high of 1,760p.

Turning around this tanker is taking time, although it still managed to generated second-quarter sales of £7.3bn, up 3% at constant exchange rates, thanks to strength in key respiratory and HIV franchises. However, this hides the wealth of problems facing new CEO Emma Walmsley, who is driving through a strategic overhaul in a bid to strengthen the pipeline, boost cash flow and reintroduce Glaxo investors to the joys of dividend progression.

Let the cash flow

They will have to wait, with Glaxo freezing its dividend at 80p in 2014, 2015 and 2016, and City analysts expecting a slight cut to 79.95p in 2017 and 2018. That's what happens when cover slips to just 1.3 and with Walmsley tying future progression to an improved free cash flow coverage ratio, investors may have to be even more patient. But it still yields a juicy 5.3%, and today's forecast valuation of 13.4 times earnings looks low by its standards.

Walmsley has revised down full-year EPS guidance from 5%-7% to 3%-5% at constant exchange rates. But she is tackling the turnaround with relish, halting more than 30 pre-clinical and clinical programmes, focusing capital on the key areas of respiratory and HIV/infectious diseases, and offloading 130 smaller consumer healthcare and vaccine businesses, on top of Horlicks. Advanced Medical Solutions should continue to deliver the share price growth, but Glaxo should remain a long-term income winner. They could balance each other nicely.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Advanced Medical Solutions. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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