Why the Sirius Minerals share price could be set to surge to 50p+
The prospects for the Sirius Minerals(LSE: SXX) share price continue to be highly uncertain. This year could prove to be a pivotal year for the company, as it seeks to deliver its stage 2 financing. Despite this, investor sentiment remains generally positive, with the company's investment performance having been strong since the start of the year.
Looking ahead, further stock price growth could be on the horizon for the business. However, it's not the only stock that could offer capital growth potential. Reporting on Wednesday was a smaller stock that may offer growth at a reasonable price.
The company in question is Georgia Healthcare(LSE: GHG). It is the largest integrated healthcare services, pharmacy and medical insurance provider in Georgia. It released half-year results on Wednesday which showed that it was able to generate revenue growth of 13.1% versus the same period from the prior year. Net profit increased by 17.1%, with return on invested capital (ROIC) increasing by 1.2 percentage points to 10.2%.
The company was able to deliver double-digit revenue growth in both its healthcare services and pharmacy and distribution businesses. Last year's significant investment in these areas seems to be paying off, with the financial prospects for the business continuing to improve.
In fact, Georgia Healthcare is expected to report a rise in earnings of 90% in the current year, followed by further growth of 47% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.4, which suggests that it offers a wide margin of safety. As a result, it could offer capital growth potential for the long term.
Sirius Minerals may also offer investment appeal for the long term. The company has made progress in delivering offtake agreements so far in 2018, with it having agreed the supply of 5.7m tonnes of its POLY4 fertiliser per year. Although it still needs to sign further offtake agreements in order to deliver on its financing goals and its overall estimates, it seems to be making progress in doing so.
This has contributed to improved investor sentiment towards the company. However, it continues to be an uncertain place to invest. The company's shares are more volatile than those of many of its resources peers - even though recent updates suggest that progress with the construction of its production facility is moving ahead as planned.
In the long run, the Sirius Minerals share price could move significantly higher. Even a price of 50p per share is unlikely to fully value the company, since its long-term estimates suggest that it could generate significant profit growth once production starts in 2021.
Certainly, volatility and risk may be high due in part to the potential for challenges regarding its financing this year. But with it making encouraging progress on its overall strategy, the company's shares could prove to be undervalued at their current price level.
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Peter Stephens owns shares of Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. 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.