Sorry, but anyone who wants to make short-term profits from this stock is backing the wrong horse!

More and more electronic prescriptions are being issued in Germany. According to the Gematik Industry Association, the 10,000 mark was broken a few days ago. This is excellent news for healthcare IT professionals Campogroup Medical (WKN: A28890).

Physicians are not yet obligated to issue electronic prescriptions to their patients. But the trend is finally pointing up. Corona has shown the need for digital operations in Germany. Telecommunication, that is, linking different information systems, in the health sector has gained great importance during the pandemic. Health insurers and lawmakers in particular are working to advance progress. Here the opportunities for Compugroup Medical are enormous – assuming that policy is making progress.

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Compugroup has a moat thanks to the SAP effect

All players in the healthcare sector operate with a large amount of patient data on a daily basis. Technical conventions, formats and interfaces are anything but arbitrary. The data sent by doctors must comply with the requirements of health insurance companies.

Large databases can only be migrated with great effort. This is why every doctor and every pharmacist thinks carefully about whether and when to change their CRM system. Accordingly, startups are finding it difficult to gain a foothold in this market.

This is exactly the great advantage of Compugroup

About 1.5 million professionals already work with Compugroup IT components. I don’t think we have to worry about the company from Koblenz in the long run. In addition, current news shows that the electronic prescription rocket is slowly igniting.

Compugroup is the best dog in many areas. The operating numbers are good in return. In 2021, sales increased by 22% to 1.06 billion euros. The company made the most money with its practice management programme: €543 million. This means a 25.1% increase in sales compared to 2020.

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Growth through acquisitions

In recent years, Compugroup has systematically bought out competitors who offer suitable products. In this way, the company enhances its market and pricing power. The customer base and sales network is constantly growing.

A good example is Texas eMDs, a provider of information systems and software for medical billing. The acquisition was completed in December 2020. Thanks to the €203 million deal, Compugroup is now also one of the leaders in this field in the US market.

This strategy is expensive

In times of low interest rates, debt capital was providing good opportunities to expand the business model through smart acquisitions. Compugroup took advantage of this opportunity. However, if interest rates rise again in the future, this could be a trap. Compugroup’s equity ratio has fluctuated between 24 and 32% in recent years.

Liabilities are still high. But management around CEO Dirk Vosner has at least reduced the debt ratio in the past five years from 170.5 to 111.7%. Operating cash flow is strong enough to support the debt burden. The EBIT is approximately 23 times higher than the current interest obligations. However, you should keep a close eye on the balance sheet if you are investing in Compugroup.

This is how Compugroup sharing works

Since the beginning of the year, Compugroup Medical’s share has lost 27.1%. Today you can get it for 51.90 € (as of April 25, 2022). The P/E ratio of 39.4 still looks high but is in line with other medical IT companies.

In my view, Compugroup Medical does not offer any urgent investment opportunities. I think you lose a little if you don’t jump right in. So I’m still lying around and waiting for the moment when the electronic rocket rises. Because in the long run, Compugroup remains a strong contender on my watch list.

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Henning Lindhoff does not own any of the shares mentioned. Motley Fool recommends CompuGroup.

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