3 reasons to buy this outperforming FTSE 100 growth stock now
The market likes today's half-year report and business update from private healthcare operator NMC Health (LSE: NMC) and the shares are up around 6% as I write. Once again, the figures are good. Revenue moved a little over 20% higher compared to the equivalent period the year before and adjusted earnings per share pushed up around 30%.
Investors in this stock have enjoyed a great run as it moved from around 476p at the beginning of 2015 to 4,288p or so today, an increase of around 800%. When things 'click' for a growth company like this, the investing outcome can be spectacular. In the case of NMC Health, I reckon growth in revenue, earnings and cash flow drove the share price higher, and those three things could be reasons to buy this outperforming stock now.
Robust growth shows in the numbers
Revenue since the end of 2014 powered up by 208%, earnings shot up almost 260% and operating cash flow per share is running almost 200% higher. These robust growth numbers encouraged investors to buy and the valuation re-rated higher, which contributed to the share price advance. The forward price-to-earnings ratio now stands close to 31 for 2019, but I reckon NMC Health is worth its high rating. City analysts following the firm expect normalised earnings to advance almost 53% this year and around 24% in 2019, which strikes me as robust growth.
The firm's good operating performance should feed into the dividend. Although no interim payment was declared today, the directors "remain committed" to their policy of paying a dividend of around 20%-30% of profit after tax. They said this policy reflects the firm's strong cash flow characteristics and keeps back enough cash to fund operations and growth. So, if earnings keep rising, the dividend looks set to go up too. The payment for the 2018 financial year will be made in one final dividend.
NMC Health is "the leading" private healthcare operator in the Gulf Cooperation Council (GCC), which is a political and economic alliance between Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Bahrain and Oman, but it has hospitals across 15 countries. On top of that, the company claims to be one of the top three in-vitro fertilisation (IVF) operators in the world. However, the firm's healthcare division is the "primary" growth driver and accounted for 73% of overall revenue during the first half of the year. That division saw revenue increase by almost 26% and earnings before interest, tax, depreciation and amortisation (EBITDA) shot up 34%. Patient numbers moved almost 20% higher during the period, fuelling these impressive financial numbers.
A robust growth outlook
The firm is working hard to achieve efficiency gains from its business and said that continuing strong demand and a "healthy" ramp-up at key facilities translate into a strong outlook for the rest of the year. Bolt-on acquisitions completed since the end of June should further enhance progress. The directors are reviewing their previous guidance of 22% year-on-year revenue growth and aim to update the market on the planned capital markets day on 22 October. My guess is that the firm will upgrade its expectations, and I think the stock is well worth your research time now.
Buy-And-Hold Investing
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Kevin Godbold has no position in any of the shares mentioned. 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.
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