Better Buy: Ping An Good Doctor vs. Alibaba Health

So far in 2020, two of the best-performing stocks in Hong Kong have been online healthcare stocks. Unsurprisingly, they are two growth stocks who are still loss-making.

I’m of course talking about Ping An Healthcare and Technology Co Ltd (SEHK: 1833), also known as “Ping An Good Doctor”, and Alibaba Health Information Technology Ltd (SEHK: 241).

Ping An Good Doctor is an online healthcare ecosystem that provides users with remote tele-health consultations. Its shares are up 88% so far in 2020.

Meanwhile, Alibaba Health is primarily involved in efficiently delivering affordable prescription drugs to its online users. Its shares are up nearly 100% year-to-date.

So out of the two, which one should long-term investors think about buying?

Revenue growth

The two companies have different financial year-ends – Ping An Good Doctor has a 31 December year-end while Alibaba Health has a 31 March year-end.

For clarity’s sake, I’ll use the latest earnings for each company to compare growth rates.

Starting first with Ping An Good Doctor, for the full year 2019 it grew its revenue 51.8% year-on-year from RMB 3.33 billion (US$470.5 million) in 2018 to RMB 5.06 billion in 2019.

In comparison, Alibaba Health saw revenue growth (for the six months ended 30 September 2019) of an impressive 119.1% year-on-year. Revenue for the six-month period in 2019 reached RMB 4.11 billion, up from RMB 1.87 billion for the same period in 2018.

Winner: Alibaba Health

Gross margin

For online growth companies, an important measure is its gross profit margin as this indicates its level of profitability (or path to it).

For 2019, Ping An Good Doctor had a gross margin of 23.1% while Alibaba Health had a gross margin of 25.1% for the six-month period ended 30 September 2019.

Winner: Alibaba Health

Valuation

Finally, I’ll compare the valuations of the two online growth companies. Given neither are posting profits at the moment (traditionally like many growth companies), it’s more useful to look at their price-to-sales (PS) ratios.

At the moment, Ping An Good Doctor has a PS ratio of 19.5x while Alibaba Health sports a PS ratio of 26.7x. That means Alibaba Health shares are substantially more expensive at the moment.

Winner: Ping An Good Doctor

Foolish summary

Both companies are likely to be solid long-term performers in the stock market if the transition to online healthcare continues on its current trajectory.

Based on the above, though, Alibaba Health wins out. However, I’d be happy to hold shares in both companies given the long runway of growth in China that’s ahead of them.

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