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. Established in 1934, and led by CEO Lewis Gradon, the company now has 4.17k employees and with the stock’s market cap sitting at NZ$7.5b, it comes under the mid-cap category. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
Currently Fisher & Paykel Healthcare has NZ$83m on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. Fisher & Paykel Healthcare generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 128x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by over 2x, much higher than the safe minimum 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 profit growth over the previous five years has been positive, with an average annual rate of 18%, beating the market growth rate of 11%. It has also returned an ROE of 25% recently, above the industry return of 12%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Fisher & Paykel Healthcare as an investment over the long run.
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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.