Why I think this ASX small-cap stock is a bargain at 40 cents

I like finding ASX small-cap stocks with an exciting future that the market could be undervaluing. In this article, I'll discuss the ASX healthcare share Paragon Care Ltd (ASX: PGC).

Paragon describes itself as a leading provider of medical equipment, devices, consumables, pharmaceuticals, complementary medicines, and nutritional supplies. It is also a manufacturer of Blood Bank diagnostic reagents for the healthcare markets in Australia, New Zealand, and Asia.

Let's get into why the business could be a compelling long-term option.

Business improvements

The business has made acquisitions that could make significant contributions to the overall profit in the coming years. It said it's on track for annual synergies of $5 million in FY25 and $12 million in FY26.

Paragon said it will continue executing the integration plan for the merged entity, focusing on operational efficiency and cost rationalisation.

The ASX small-cap stock said it will increase cross-selling of an expanded product range and bundled offerings. It's actively reviewing its customer, product, and agency partner pipeline to embed organic growth.

Paragon also said an acquisition pipeline is in place for searches for additional growth opportunities.

Long-term tailwinds

The healthcare space is a useful place to be because of the growing and ageing population.

The more people in Australia, the more demand there is likely to be for Paragon's products. According to the Australian Bureau of Statistics (ABS), there are currently 27.6 million people in Australia, and this is expected to rise to 29.9 million people by 2030.

In addition, the people most likely to need healthcare services—older Aussies—are expected to grow in number in the coming years. According to the ABS, the number of Aussies aged at least 65 is expected to rise by 26% to 5.8 million by 2031. I think this is a useful tailwind for future demand.

The ASX small-cap stock is delivering growth

In the company's FY25 half-year result, it delivered pleasing growth. In terms of the underlying numbers, revenue grew by 13.1% to $1.85 billion, and the underlying net profit after tax (NPAT) increased by 13.3% to $16.1 million.

The statutory result saw revenue rise 28.4% to $1.85 billion, and NPAT grew 85.9% to $13.2 million.

I'm not expecting ParagonCare to grow underlying profit by more than 10% on every result, but the company's outlook seems positive based on everything I've outlined above. The business is optimistic about long-term growth in the Asia Pacific region.

The ParagonCare share price dipped 24% in March, so it looks significantly cheaper now.

The post Why I think this ASX small-cap stock is a bargain at 40 cents appeared first on The Motley Fool Australia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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