Investors wanting to ride the healthcare train should take a close look at CVS Group (LSE: CVSG) today. City analysts expect earnings to rocket 15% in the current fiscal year to June. However, the potential for brilliant profits growth isn’t just limited to the near term.
CVS is the UK’s largest integrated veterinary services operator. As well as running 500 surgeries, it owns four labs for diagnostic services, operates pet crematoria, and sells medicine, food and other animal-related gear through a dedicated website.
Why does this make the AIM business such a top growth stock? Well, recent research suggests the global veterinary market will grow at a compound annual growth rate of more than 10% over the next three years, at least.
In fact, data shows sales momentum in this sub-sector is picking up speed. And as a major player in the gigantic UK marketplace — by far the largest in Europe for vet spend — CVS is in the box seat to ride this trend.
Booming share price
Strong trading updates of late reveal just how lucrative the industry is. In the four months to October, sales at CVS beat even its own expectations. These rocketed 16.8% in the period, or 8% on a like-for-like basis. And underlying sales at its core Practices division leapt 7.4% year-on-year.
The strong performance of its surgeries wasn’t just driven by one or two factors either. It said the “focus on high quality clinical work, including increased volume and value of referrals” helped to drive like-for-likes in the four months. However, higher vet fees across its UK small animal business, allied with price increases at its Healthy Pet Club preventative medicine scheme, went some way to inflating the top line too.
Now CVS doesn’t come cheap. At current prices, it trades on a forward P/E ratio of 21.3 times. But an elevated premium is a small price to pay for a firm with a dominant role in such a fast-growing sector.
The stock has ballooned 170% in value in the past 12 months and I’m tipping it to keep on exploding. And with fresh trading details due this Friday (February 7), I think another significant move higher could be just around the corner.
More great news?
Before you go, I’d also like to mention GlaxoSmithKline (LSE: GSK), another healthcare stock which could print more share price gains this month.
Like CVS, strong trading numbers have driven investor demand over the past year, steering the company’s price 23% higher since early February 2019. And I’m excited to see what the FTSE 100 firm’s fourth-quarter update will reveal tomorrow (February 4). Last time out in October, it reported better-than-forecast numbers for quarter three as strong sales across the business pushed group revenues 16% higher.
In 2020, GlaxoSmithKline’s earnings are expected to dip 3%. Though news of stronger trading tomorrow could see City analysts upgrade their forecasts like they did following October’s update. With a forward P/E ratio of 15.2 times and divided yield of 4.4%, I reckon the drugs star is a brilliant buy today.
