Should I buy or avoid this FTSE healthcare stock?

Should I buy shares in FTSE AIM incumbent Emis Group (LSE:EMIS) for my holdings? 

IT healthcare business

Emis provides healthcare-related software services for general practice (GP) surgeries around the UK. One of its key products is Patient Access, which is a platform offered to patients to book appointments as well as request prescriptions and access general medical information. It also played a role in supporting the NHS during the pandemic using its Outcomes4Health platform to support the vaccination rollout.

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As I write, Emis shares are trading for 1,258p. At this time last year, the shares were trading for 1,122p, which is a 12% return over a 12-month period.

Should I buy this FTSE stock?

FOR: I always look at a stock’s performance track record. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see Emis has consistently performed well in terms of revenue and profit for the past four years. Coming up to date, it released a post-close trading update at the end of last month. Emis reported growth compared to 2020 levels and confirmed a couple of new acquisitions. It also mentioned its healthy cash balance and a generally robust balance sheet. Full results will be due next month.

AGAINST: Emis shares look a bit expensive at current levels. They are trading at a price-to-earnings ratio of close to 28. This tells me that growth could already be priced in. Furthermore, any negative news or a drop in performance could send the share price on a downward trajectory.

FOR: Emis operates in a market whereby the products it sells aren’t the type to be replaced regularly and there is a high likelihood of repeat custom. I call these “sticky” software solutions and these are embedded into a GP’s infrastructure. This could help boost performance and growth. Emis also pays a dividend with a yield of 2.5%. This is higher than the FTSE AIM and FTSE 250 averages. I do understand dividends can be cut or cancelled, however.

AGAINST: The healthcare software market is extremely competitive. There are many players vying for market dominance. I also believe the recent pandemic has exacerbated the need for cutting-edge software to help healthcare providers operationally and provide patients with technological solutions to help complete day-to-day tasks. Emis could see its market share affected, which could then affect performance and any returns.

My verdict

There is a lot to like about Emis in my opinion. It has a long history and good track record of performance as well as the fact it pays a dividend to help me make a passive income. It has a good footprint in the UK and is growing via acquisitions and organically too.

I would add Emis shares to my holdings. I believe it is one of the best stocks for me to buy on the FTSE AIM index currently and I am keen to see full-year results next month.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Emis Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This post was originally published on Motley Fool

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