OraSure Technologies Stock: Long-Term Prospects Look Great

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OraSure Technologies Delivering Consistent Growth

The healthcare sector will likely undergo a major reform under President Donald Trump as the country deals with the ever-increasing cost of drugs and care.

While biotech stocks are currently under pressure due to the uncertainties of drug pricing, providers of medical devices are intriguing. This includes small-cap OraSure Technologies, Inc. (NASDAQ:OSUR), a developer of a broad range of portable test kits for critical medical conditions, including HIV.

OraSure Technologies also provides kits for testing for drugs and alcohol, along with cryosurgical products geared for plantar warts and skin lesions.

The tests are performed by the collection of oral fluids, which makes the product ideal for workplaces and other mobile venues, such as law enforcement.

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What makes OraSure Technologies intriguing is its geographical reach that comprises North America, South America, Europe, and Australia.

OSUR stock has underperformed the S&P 500, down eight percent this year, but it is roughly in line with a 13.4% advance over the past 52 weeks.

Chart courtesy of StockCharts.com

My Bull Case for OSUR Stock

OraSure Technologies has produced steady growth in numerous key fundamental metrics, which is a catalyst for higher OSUR stock prices on the horizon.

Revenues have increased sequentially in the past four consecutive years from $98.9 million in 2013 to $167.1 million in 2017, representing a compound annual growth rate (CAGR) of 14%. (Source: “OraSure Technologies, Inc. (OSUR),” Yahoo! Finance, last accessed June 25, 2018.)

It was encouraging to see that OraSure Technologies grew its revenue by 36.1% in 2017, well above the CAGR, and the company’s highest growth rate in years.

 Year Revenue (Millions) Growth
2013 $98.9
2014 $106.5 7.6%
2015 $119.7 12.5%
2016 $122.8 2.6%
2017 $167.1 36.1%

The revenue growth is expected to moderate to 10.5% (to $184.5 million) in 2018 and 10.5% (to $203.9 million) in 2019, which is still above the CAGR.

Along with the past revenue growth, OSUR stock managed to drive earnings before interest, tax, depreciation, and amortization (EBITDA) and earnings at rates far above the revenue growth rate.

 Year EBITDA (Millions) Growth
2013 -$13.9
2014 -$4.0 -71.2%
2015 $13.8 444.3%
2016 $20.6 49.5%
2017 $33.8 64.5%

This is a bullish sign and suggests that management at OraSure Technologies can control costs and drive profitability.

 Year Diluted Earnings Per Share Growth
2013 -$0.20
2014 -$0.08 -60%
2015 $0.14 275%
2016 $0.35 150%
2017 $0.51 45%

OraSure Technologies is estimated to see a hiccup in its earnings this year, contracting to $0.28 per diluted share but later rallying to $0.51 per diluted share in 2019.

As far as the financial risk is concerned, OSUR has no debt and has been delivering positive and increasing free cash flow over the past three years.

 Year Free Cash Flow (Millions) Growth
2013 $5.9
2014 $4.5 -23.7%
2015 $12.0 166.1%
2016 $20.3 68.3%
2017 $23.8 17.7%

Analyst Take

The fundamentals behind OSUR stock are bullish, and the fact that many of the key metrics are growing is positive for the stock’s outlook.

The forward multiple of 33-times the 2019 earnings per share—and a price/earnings to growth (PEG) ratio of 3.2—suggest a fair valuation. However, if OraSure Technologies can deliver better results, the shares could rally over the long term.