Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – Fisher & Paykel Healthcare Corporation Limited. Looking at its size, financial health and track record, I believe there’s an opportunity with Fisher & Paykel Healthcare during these volatile times.
Fisher & Paykel Healthcare Corporation Limited, together with its subsidiaries, designs, manufactures, and markets medical device products and systems worldwide. Started in 1934, and run by CEO Lewis Gradon, the company now has 4.00k employees and with the company’s market cap sitting at NZ$8.6b, it falls under the mid-cap stocks category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.
Fisher & Paykel Healthcare currently has NZ$96m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Fisher & Paykel Healthcare generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 420x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by more than 2x, which is higher than the bare minimum requirement of 0.2x. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning FPH’s financial strength will continue to let it thrive in a fickle market.
FPH’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 17%, outpacing the market growth rate of 11%. It has also returned an ROE of 27% recently, above the industry return of 12%. Fisher & Paykel Healthcare’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.
Next Steps:Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Fisher & Paykel Healthcare tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
- Future Outlook: What are well-informed industry analysts predicting for FPH’s future growth? Take a look at our free research report of analyst consensus for FPH’s outlook.
- Valuation: What is FPH worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FPH is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.