Buying shares which have posted large gains can be a sound strategy. While it can mean a lack of potential upside due to a narrow margin of safety now being in existence, there is no guarantee that a rising share price will eventually fall. In some cases, a higher share price can indicate improving financial performance and the start of a new strategy bearing fruit. As such, it can be an opportune time to buy. With that in mind, here are two shares which have made gains but could still be worth buying.
Improving performance
Reporting on Friday was specialist producer of manual and automated diagnostic testing kits, Immunodiagnostic Systems (LSE: IDH). Its shares jumped by almost 4% following its trading update for the most recent financial year. This takes their gain for the 2017 calendar year to 47%.
The company’s automated business delivered revenues which were around 3% higher than in the prior year at constant exchange rates. It also launched four new CLIA automated assays, which brought the total assay menu with a CE-mark up to 19 assays. This represents expansion of the assay menu of 25% during the year. This and developments made elsewhere in its automated division show it is making progress with its roadmaps for R&D, sales and marketing.
In the company’s manual business, it was able to slow the downward trend. Revenues declined by 11% versus the prior year, but a focus on building the sales process and distribution channels could lead to an end to the decline in revenue at constant exchange rates.
With a sound strategy and performance which could prove to be better than anticipated, Immunodiagnostic Systems could record further share price gains. Revenue growth of 4% indicates that its shares could be a sound buy at the present time.
Growth potential
Also offering potential upside within the healthcare sector is Shire (LSE: SHP). Its combination with Baxalta has the potential to create a dominant pharmaceutical company with a pipeline of new treatments which could positively catalyse earnings growth in the long run. Furthermore, the synergies from the deal may push earnings higher and contribute to a higher valuation for the business over the medium term.
With Shire forecast to deliver a rise in its bottom line of 15% next year, the progress of the combined entity is set to be encouraging. However, many investors are somewhat unsure as to how compatible the two businesses will be, and there are doubts surrounding the level of synergies which may be recorded. As a result, the company’s shares trade on a price-to-earnings growth (PEG) ratio of only 0.7. This indicates that they offer a wide margin of safety and their upside potential could be significant.
Certainly, there are risks in the combination of any two companies. But with a strong pipeline and a low valuation, Shire looks set to deliver robust share price performance after its 115% gain in the last five years.