Wednesday, June 20, 2018
Digital Health On The Australian Stock Market - A Mixed Bunch Indeed.
This appeared last week.
By Bob Kohut | 11.06.2018
Many Investors with the time and temperament to manage their own portfolios of individual stocks gravitate towards high growth opportunities. After all, given the effort required to research individual stocks, why not look for outstanding rewards? For the risk averse with little inclination for individual stock research there are mutual and exchange traded funds.
Business sectors with the proverbial “tailwinds” at their backs and newcomers with business models set to disrupt traditional ways of doing business are prime targets.
Right now, healthcare and technology are two of the hottest sectors on the ASX, and likely to remain so. Both sectors were up 26% for calendar year 2017.
Quality digital health stocks offer the opportunity to benefit from both the technology and healthcare sectors as well as the potential for disrupting the status quo in healthcare.
Digital health is a term encompassing a range of health care offerings, all made possible because of the digital transformation of our society.
At their core, all are based on software applications ranging from diagnostic and analytic systems to mobile health monitoring and measurement systems.
Telehealthcare today enables consumers to make appointments and payments as well as view test results all from their computer and in some cases from a mobile phone.
The term “digital health systems” has become somewhat of a buzzword, often limited to the increasing number of wearable health monitoring devices and smartphone apps. However, a more precise description includes digital diagnostic tools and medical record systems. The term mHealth is a subset encompassing all digital health offerings available on mobile devices.
The following chart from market research and strategy consulting firm Global Market Insights forecasts growth in the digital health market by technology through 2024. According to GMI the total “digital health market in the US in 2016 was valued at US$60 million dollars, with more than 26% CAGR (compound annual growth rate) expected from 2017 to 2024.”
No matter how hot the sector or the disruptive potential of a new technology, start-up digital health stocks suffer from the obstacle confronting all early stage companies – the race against time. Essentially, these companies engage in a struggle to turn profitable before their cash runs out. Repeated capital raises and borrowings may generate cash needed to continue the struggle but erode investor confidence and can lead to deterioration of the stock price.
A prime example is an early ASX mover in wearable fitness monitoring technology – Catapult Group International (CAT). The company came on the ASX in late December of 2014, full of promise and high-profile backers like the billionaire owner of the US Dallas Mavericks basketball team, Mark Cuban.
Initially investors were thrilled to see the growing client list of well-known sports teams around the world. In less than two years the stock price shot up 600% before the roof caved in.
The company’s share price hit its all time high following the first major capital raise to fund two acquisitions, with both later failing to propel revenues as expected. In its headlong pursuit of growth, the company management kept draining cash as though tomorrow would never come, only it did as investors grew weary of capital raise after capital raise. The company remains a market leader and some analysts see potential, but Catapult’s FY 2017 Financial Results highlight the problem.
Despite a massive 249% increase in revenue, the company failed to report a profit, increasing its loss 57% from the FY 2016 loss of $5.9 million to a loss of $13.9 million. Analysts, however, remain enthusiastic about the stock with a consensus rating of OUTPERFORM and not a single SELL recommendation. The stock price is down 33% year over year.
Eight other stocks are covered in the linked article:
1. ResApp Health Limited (ASX: RAP)
2. Alcidion Group (ASX: ALC)
3. dorsaVI Limited (ASX: DVL)
4. Global Health Limited (ASX: GLH)
5. G Medical Innovations (ASX: GMV)
6. LifeSpot Health Limited (ASX: LHS)
7. PainCheck Limited (ASX: PCK)
8. Volpara Health Technologies (ASX: VHT)
With the exception of Volpara, and possibly Catapult none has a market cap. even close to $100M so they are true microcaps!
They are a motley collection with only Volpara looking to me to be a really potential goer (AI Technology in Image Analysis).
One not mentioned in the list but now looking like a real success in ProMedicus (ASX: PME) who do Image Analysis and Transfer and who are winning major contracts in the US. They are a giant in this list with a market cap near to $800M. (Was a 1/10 of that 5 or so years ago.)
Whether any of those about is a possible ProMedicus only time will tell and it is definitely up to the reader to check very carefully before investing – you could do the entire investment with any of them!
For me I think I will stick with the likes of CSL, ResMed, Cochlear, Ramsay and Fisher Paykel Health and forego the speculative excitement!
Posted by Dr David G More MB PhD at Wednesday, June 20, 2018