Co-Diagnostics Inc (NASDAQ:CODX), a USD$72.34M small-cap, is a healthcare company operating in an industry, which continues to be affected by the sustained economic uncertainty and structural trends, such as an aging population, impacting the sector globally. Moreover, the challenges facing the healthcare equipment in particular, are complex and interrelated. Therefore, care delivery approaches that are holistic and technology-enabled are more likely to result in positive outcomes in the long run. Healthcare analysts are forecasting for the entire industry, a strong double-digit growth of 23.05% in the upcoming year, and a massive growth of 52.18% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in healthcare companies? Today, I will analyse the industry outlook, as well as evaluate whether CODX is lagging or leading its competitors in the industry. View our latest analysis for Co-Diagnostics
What’s the catalyst for CODX’s sector growth?
Integration with technology for more personalized and data-driven equipment, underpinning healthcare ‘internet of things’ has been a structural shift for the healthcare equipment providers. Over the past year, the industry saw growth in the twenties, though still underperforming the wider US stock market. CODX lags the pack with its negative growth rate of -27.34% over the past year, which indicates the company will be growing at a slower pace than its healthcare equipment peers. As the company trails the rest of the industry in terms of growth, CODX may also be a cheaper stock relative to its peers.
Is CODX and the sector relatively cheap?
Healthcare companies are typically trading at a PE of 43x, above the broader US stock market PE of 22x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.98% on equities compared to the market’s 10.02%. Since CODX’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CODX’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, CODX generated 93.13% in the past year, which is 82.15% over the healthcare equipment sector.
What this means for you:
Are you a shareholder? CODX has been a healthcare equipment industry laggard in the past year. If your initial investment thesis is around the growth prospects of CODX, there are other healthcare equipment companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how CODX fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If CODX has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its healthcare equipment peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at CODX’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Co-Diagnostics’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other healthcare stocks instead? Use our free playform to see my list of over 1000 other healthcare companies trading on the market.