Hologic Produces the First FDA-Approved 3D Mammography Platform
In this article, let's take a look at Hologic Inc. (HOLX), a $7.4 billion market cap company, which makes proprietary discrete mammography and X-ray bone densitometer systems to diagnose and monitor breast cancer, osteoporosis, and other metabolic bone diseases.
First-Mover Advantage
The company operates in four segments: diagnostics (48% of sales), breast health (36%), surgical (12%), and skeletal health (4%). The first segment has increased steadily, with a growth of nearly 100% and we expect this would continue.
The company controls about 65% of the U.S. digital mammography market. It has an important position on the first 3-D mammography platform approved by the U.S. Food and Drug Administration.
After the Gen-Probe acquisition, a leading maker of molecular diagnostic products, Hologic also holds the top position in a host of diagnostic tests catered to women's health that run solely on its proprietary instrumentation. Gen-Probe�s products are ideal to penetrate regions with good prospects to grow (BRIC countries) and this should expand its revenue base.
Revenues, Margins and Profitability
Looking at profitability, revenues grew by 6.18% and led earnings per share to increasecompared to the same quarter a year ago ($0.1 vs -$4.11). During the past fiscal year, the company turned its bottom line around by earning $0.06 versus -$4.33 in the previous year. This year, Wall Street expects an improvement in earnings ($1.53 versus $0.06).
Finally, let�s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
Ticker | Company | ROE (%) |
HOLX | Hologic | 0.87 |
ALR | Alere Inc. | -7.15 |
GE | General Electric | 10.16 |
RMD | ResMed Inc | 20.61 |
Industry Median | 8.15 |
The company has a current ROE of 0.87% which is higher than the one exhibit by Alere Inc. (ALR) but lower than General Electric (GE). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. For investors looking those levels or more, ResMed Inc. (RMD) could be the option. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 4656.8x, trading at a premium compared to an average of 42.5x for the industry. To use another metric, its price-to-book ratio of 3.57x indicates a premium versus the industry average of 3.51x while the price-to-sales ratio of 2.92x is equal to the industry average.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $18,423, which represents a 13% compound annual growth rate (CAGR).
The company has demonstrated a pattern of positive earnings per share growth over the past years.
Final Comment
We still believe that the Health Care Equipment industry will remain profitable in the long term as there is an increase of the age of the population. It is important to mention that Hologic offers the only FDA-approved breast tomosynthesis platform and this is really good because digital platforms are popular and demanded.
Hedge fund gurus like Paul Tudor Jones (Trades, Portfolio), Jim Simons (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) have added this stock to their portfolios in the third quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
This article first appeared on GuruFocus.
