If you are looking to invest in healthcare companies in Singapore, there are a multitude of options to choose from, including Raffles Medical Group Ltd (SGX: BSL), Q & M Dental Group (Singapore) Limited (SGX: QC7) and IHH Healthcare Bhd (SGX: Q0F).
However, one company I suggest you stay far away from is TalkMed Group Ltd (SGX: 5G3). Despite its share price falling more than 20% from its high in 2017, I feel that even at current valuations, the stock is not a value buy.
As a quick introduction to the stock in question, TalkMed is a specialised private healthcare provider. It deals with oncology and palliative treatment and operates a total of eight clinics, while employing 14 specialist doctors.
Fragile business model
Recently, the group made news for the wrong reason. Founder and chief executive, Dr Ang Peng Tiam, was suspended from medical work for eight months and fined for making a false representation to a patient and failing to offer surgery as a form of treatment.
Consequently, with the bad press surrounding the group and Dr Ang’s inability to carry out his medical work, patient load and revenue both declined in 2017. This is a testament to how fragile the group’s business and overall profitability is. It also demonstrates the group’s over-reliance on Dr Ang as he is one of the main revenue and income contributors.
Poor track record of growing its business
Smaller companies tend to be more nimble and are usually able to expand their business quickly. TalkMed, however, despite its relatively small size, has failed to demonstrate sustainable growth over its few years as a listed company.
Source: SGX StockFacts
The chart above shows the group’s revenue over the last five-year period. As you can see, there has been very limited revenue growth. From 2013 to 2017, the group only grew revenue by 9% in total. That translates to a measly 1.8% compounded annual growth.
At the time of writing, shares of TalkMed Group are trading at S$0.70 per share. That equates to about 28.7 times its earnings, which is higher than some of its peers such as Raffles Medical Group (28.5) and Q&M Dental Group (20.3).
With the current challenges that TalkMed is facing, plus its poor track record of growth, the higher price-to-earnings ratio certainly does not seem warranted in my books.
The Foolish bottom line
The healthcare sector is viewed as one of the more defensive industries. It tends to be less susceptible to macroeconomic conditions. However, if you are looking to add a healthcare stock to your portfolio, I most certainly suggest looking beyond TalkMed Group.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group. Motley Fool Singapore contributor Jeremy Chia own shares in Raffles Medical Group.