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Investors looking to make money from seniors' desire to stay in their homes as they become less mobile are eyeing accessibility equipment maker Savaria Corp. However, analysts say the stock is getting expensive after a recent runup.
Shares of Laval, Que.-based Savaria, which manufactures stair lifts, wheelchair platform lifts and elevators, have risen more than 55 per cent so far this year, boosted by record revenue and profit growth and increased interest in the sector. The company also pays an attractive dividend, yielding about 2.5 per cent.
"They're in a good industry. The fundamentals are very favourable for the company as they play well into the aging population trend," said Nick Agostino, an analyst at Laurentian Bank Securities.
He has a "buy" and $9 target on the stock, which is currently trading at about $8.45.
Mr. Agostino credits the company's success to management's overall strategy, including sourcing parts from China to improve margins and its ability to expand its existing product base and grow through acquisitions.
"The one push back on the name right now is its valuation," Mr. Agostino said. The stock is trading at about 23 times forward earnings.
Still, Mr. Agostino expects the company to "grow into that valuation" as it boosts market share amid shifting demographics.
"It's a case of people wanting to play that industry trend and having limited options when it comes to that type of market opportunity within Canada," he said.
All four analysts who cover the stock have a "buy" rating. The consensus price target over the next year is $8.75.
The stock hit its all-time high of $9 at the end of May, after the company increased the size of a bought deal financing. It wound up raising $20-million.
The shares surged again recently after another company in the industry, Prism Medical Ltd., which makes ceiling and floor lifts for health-care facilities, was bought by Swedish-based Handicare AB for a 32-per-cent premium. Analysts said that helped to prop up Savaria's share price.
For its own growth, Savaria recently bought the automotive business of Shoppers Home Health Care, a division of Shoppers Drug Mart, which includes wheelchair van conversions and other mobility equipment for vehicles. The purchase was through the Silver Cross unit that Savaria bought in 2015, a franchise that sells new and used accessibility products such as scooters and lift chairs.
In an interview, Savaria chief executive officer Marcel Bourassa, who acquired the company in 1989 (he took the company public in 2002), said Savaria's growth is focused primarily in North America, where it does more than 90 per cent of its business.
Mr. Bourassa forecasts the company's revenue will grow 15 per cent annually, not including acquisitions. That includes growth from existing products and new ones, such as a ceiling lift the company is expected to start selling this fall.
The company is also on the hunt for a "key acquisition," Mr. Bourassa said, adding that he's looking for "a company that is well established in our industry."
He expects the company to make a major acquisition in the United States in the next 12 months.
Some risks for the company include competition from other mobility product makers, government regulations and currency fluctuations. The high level of insider ownership may also turn off some investors, because it means less liquidity in the stock and more power in the hands of management. Mr. Bourassa and his brother, chief financial officer Jean-Marie Bourassa, control about 40 per cent of the shares. Some investors gain more comfort with an investment when management has a higher stake, because it means they're more invested in the results.
Ryan Modesto, managing partner with 5i Research, says Savaria's stock is drawing more scrutiny as its market size increases, and because of the industry it's in.
"Investors are waking up to the potential in this space," Mr. Modesto said.
He agrees the stock is getting pricey and recommends that investors who are interested in the stock buy a bit now, and maybe wait for other opportunities to buy down the road.
"It looks expensive now, but it's the type of company that can remain expensive as their growth rate increases," Mr. Modesto said. "They are serving a good demographic that will only grow over the long term."