SHL share price in focus
Sonic Healthcare, listed in April 1987, has grown into one of the world’s largest pathology businesses, with operations spanning Australia, New Zealand, Europe, and North America.
The company provides a wide range of services, including laboratory medicine, pathology, diagnostic imaging, radiology, general practice medicine, and corporate medical services.
Sonic Healthcare is committed to prioritizing the needs of doctors and their patients, striving for medical excellence while fostering a supportive and desirable workplace.
The appeal of Healthcare ASX shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 1.39% per year over the last 5 years compared to 3.91% per year from the broader ASX 200. Here are three key reasons to consider adding a healthcare company like SHL to your investing watchlist.
Sticky revenue
Healthcare spending (in most cases) is essential spending, making it one of the last areas people cut back on during tough economic times.
Unlike cyclical businesses affected by commodity prices or seasonal demand, healthcare companies benefit from stable and consistent revenue streams. We sometimes call this ‘sticky’ revenue. Evidence of this fact is that healthcare was the best performing sector during the GFC.
Growth potential
Global healthcare spending, particularly in the US – which accounts for over 40% of the global total – is projected to grow significantly. Estimates for the US are 7% per year from 2022 to 2027, reaching US$819 billion.
Within the broad sector of healthcare, certain sub-sectors stand out for their additional growth potential. For example, healthcare IT, data solutions, and ‘software-as-a-service’ (or SaaS) companies are forecast to grow at more than 15% per year from 2024 to 2030, a rate that would get most investors interested.
The ethical investor
A recent Morgan Stanley survey revealed that more than half of investors plan to increase their allocation to sustainable investments in 2024. With growing interest in ‘ethical’ and ‘sustainable’ investing, sectors like healthcare that provide essential public services are well-positioned to attract new capital and investors.
SHL share price valuation
As a growth company, one way to put a broad estimate on the SHL share price could be to compare its price-to-sales multiple over time. Currently, Sonic Healthcare Ltd shares have a price-sales ratio of 1.50x, compared to its 5-year average of 1.94x, meaning its shares are trading below their historical average. This could mean that the share price has fallen, or sales have increased. In the case of SHL, revenue has been growing over the last 3 years.
Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the SHL share price.
