2020 Stock Pick: Georgia Healthcare Group
This is an article for my long-term investors. The information in this article has nothing to do with speculative day trading and is intended as the case for a long -term buy & hold investment.
Georgia Healthcare Group
I’ve identified Georgia Healthcare Group (LON:GHG) as a potentially lucrative investment opportunity. Here we have a company whose share prices have been beaten down in recent times and now offer a lot of room for recovery. In the following article I will be covering the numbers and giving my opinions on the possible future of GHG, explaining why I think it could be a profitable stock pick for 2020.
Who is GHG?
Georgia Healthcare Group is the Georgian market leader in a number of sectors:
- The largest healthcare service provider in Georgiawith a 23.2% market share
- The largest pharmaceutical retailer in the country with a 32% market share.
- The largest medical insurer in Georgia with 31.9% market share.
- Largest medical diagnostics lab in Georgia & the Caucasus region.
The healthcare sector is something that will never die out, making it a focal investment area for myself. Being the market leader in its particular location GHG flags up to me as a very exciting investment opportunity, so let’s dig deeper.
Past Price Action
In 2016 GHG stocks saw a monumental price increase of over +160% from the low. This significant growth was followed by a phase of consolidation that lasted the whole year of 2017 before price tumbled by -65% through 2018 & 2019 – giving back all of its previous market gains. At the close of 2019 GHG was trading 20% lower than it was before the rally started back in 2016.
GHG stock prices are now at historical lows, which leaves a lot of room open for growth. However, buying simply because prices are low isn’t the way to be a successful investor. Before we start making financial risks we need to dive deeper into the stock to assess the likelihood of growth. This is where GHG stands out to me as a solid stock pick.
Current Market Stance
GHG sits at an exceptional market stance right now. The stock value is trading around 60-80% below fair value by cashflow, earnings & growth calculations. This instantly suggests that we are looking at an undervalued stock from the get go – a great sign for growth investing. GHG trades around the £1.20-£1.30 price mark at the time of writing, a favourable price to be entering the market with significant room for upside and only little room to fall lower.
As you can see in the 1D chart above, GHG is trading in consolidation which could very well be a period of accumulation before popping to the upside. We can see clearly demand driving the market away from the lows, but until we break & retest above the accumulation we don’t have confirmation. Technicals are not the focus point of long-term investments. – these growth investments aim to provide long term passive profitability without meticulous tech analysis, so this isn’t something to focus our energy on but it is a nice additional confluence supporting price.
GHG has some modest debt which it is leveraging to grow the business. The debt is by no means excessive right now and isn’t at a level that I deem a concern for the longevity of the company.
We are looking at the largest healthcare provider in the whole of Georgia here, a steadily growing economy with a steadily growing population. Healthcare is essential in all countries and Georgia is no different. A growing population paired with a growing economy provides a lot of room for growth for this dramatically undervalued asset.
Earnings are expected to see growth of up to +30% in the coming year, significantly outperforming other companies in the healthcare sector. Revenue is expected to grow alongside overall earnings at a rate of +8.2%, suggesting debts are manageable and the company is able to retain a fair amount of their earnings.
GHG holds assets high enough in value to cover all current liabilities, putting it in a good financial position to continue with business growth rather than use energy & capital covering out-of-control debts & liabilities.
All of the fundamentals point to long term business growth potential. GHG has a strong earnings stream that is growing year by year, while existent debts are certainly under control & revenue is still being generated, the debt that exists is beneficial for leveraging for business growth which is ultimately what we wish to catch here.
Investor Earning Potential
GHG has earning potential in more ways than one. For a start we have the potential for strong business growth and a recovery in the stock price. With consistent earnings growth, managed & leverageable debt and a growing economy & population to contribute to growth, GHG is in a great position to add a fair few percentages over the years to come. We look to be closing up a major profit-taking sell off, and if this is the bottom we could be buying in at a prime price point.
That’s not the only way that GHG can provide an income for us as investors though, we can also look to dividends.
Dividends are payments made to investors as goodwill for holding a stake in the company.
GHG introduced dividends for investors around 1 year ago and as it stands has only paid out dividends once in the past in 2019. This means GHG is relatively new to dividend payments and they don’t have a solid track record for pay-outs yet, making them a riskier dividend investment choice than some of the longer-term companies. The main attraction of this stock is growth investing not dividend income, so we can take the additional risk on dividends here without too much of a concern.
The dividend yield for GHG sits at 1.14%, so for every £100 stake you hold you will be paid out £1.14
per year just for holding the stock regardless of market value. GHG’s pay-out
ratio sits at 17.30% right now –
this means the company pays out only 17.30% of its income to investors. If you
are new to investing this may sound like a lot, but a 17.30% pay-out ratio is extremely
good compared to many other businesses. This frees up the remaining 82.7% of earnings to be reinvested into
business development, put towards assets, and used to scale down debts.
The current dividend yield of 1.14% and low pay-out ratio of 17.30% leaves a lot of room for dividend growth. This is a great additional bonus for this stock pick – dividends can be reinvested over time to build your stake, gradually adding to gains as stock value grows.
Georgia Healthcare Group is looking like a top growth stock pick for 2020, and the bonus of dividends offers a nice added incentive to hold a stake in this company. The currently undervalued prices of this stock provide a wonderful opportunity to buy in at low prices in order to catch recovery & future growth.
Buying into a devalued stock like this is of course riskier than picking more established companies but the potential rewards could massively outperform those of blue-chip stocks. This is where Dollar Cost Averaging shines through – we don’t want to try & catch the bottom of a trend, instead we can simply add a small amount to our portfolio each month, scaling in regardless of losses or gains.
It’s a stock to think strategically about – don’t fill up your entire portfolio with this company (you should always focus on blue chip stocks as the core of your portfolio) but you can definitely consider adding a GHG stake to your portfolio to reap the potential rewards & benefit from the dividends regardless.
Safety: 3/5 – Risky bet to catch the bottom but we can scale in via Dollar Cost Averaging
Dividends: 4/5 – Low yield but GHG can easily afford to grow dividends over time.
Growth Potential: 5/5 – The key factor for this pick. Undervalued stock with solid fundamentals