There’s no stopping the C-MER Eye Care Holdings Limited (SEHK:3309) growth train, with analysts forecasting high top-line growth in the near future. I’ve written a brief commentary on the key things you’d need to believe in order to be long 3309.
C-MER Eye Care Holdings Limited, an investment holding company, provides ophthalmic services under the C-MER Dennis Lam brand name in Hong Kong and the People’s Republic of China. Started in 2012, it operates in Hong Kong and is recently valued at HK$8.98B.
The company is growing incredibly fast, with a year-on-year revenue growth of 25.16% over the past financial year . Over the past five years, sales has risen 20.34%, parallel with larger capital expenditure, which most recently reached HK$65.59M. With continual reinvestment into business operations, a return on investment of 13.90% is forecasted for the upcoming three years, according to the consensus of broker analysts covering the stock. Net income is expected to reach HK$103.00M over the next year, and over the next five years, earnings are predicted to grow at an annual rate of 49.76% on average, compared to the industry average growth of 17.52%. These numbers tell me that 3309 has a robust history of delivering profit to shareholders, with a disciplined approach to reinvesting into the company, and a bright future relative to its competitors in the industry.
Limiting your downside risk is an important part of investing, and financial health is a key determinant on whether 3309 is a risky investment or not. C-MER Eye Care Holdings’s balance sheet is healthy, with high levels of cash generated from its core operating activities (7.32x debt) able to service its borrowings. Furthermore, 3309’s debt level is at an appropriate 5.68% of equity. It also generates income from lending its cash which, in turn, is able to cover its annual interest payment to its debtors. The company shows the ability to manage its capital requirements well, reducing my concerns around the sustainability of the business going forward. 3309 has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. 3309 has managed its cash well at a current level of HK$78.03M. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.
3309 is now trading at HK$8.72 per share. With 1.03 billion shares, that’s a HK$8.98B market cap – which is expensive, even for a company that has a 5-year cumulative average growth rate (CAGR) of 20.34% (source: analyst consensus). With an upcoming 2018 free cash flow figure of HK$69.00M, the target price for 3309 is HK$2.79. Therefore, the stock is trading at a premium. Moreover, comparing 3309’s current share price to its peers based on its industry and earnings level, it’s overvalued by 441.60%, with a PE ratio of 167x vs. the industry average of 30.87x.
3309’s investment thesis is a positive one. I’m attracted to the company because of its strong fundamentals – financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.