The Best Stock in This Under-Loved Growth Sector

By Markets Fool.com

If you were to ever to scrutinize the operations of a hospital, you might be surprised to observe how inefficiently hospitals manage their supplies and staff. This is where Omnicell comes in. By providing medical control and patient safety solutions, the company aims to improve a hospital's standard of care by allowing clinicians to spend more time with their patients.

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The company mainly serves two groups of customers:

  1. Acute care:Hospital customers, normally pharmacists and nurses. Omnicell helps nurses and caregivers be more efficient -- essentially automating the administrative parts of their work, such as obtaining medication, stocking inventory, and tracking medical supply usage. Omnicell also sells consumable medication packages, which generate about 18% of Omnicell's total revenue.
  2. Non-acute care:Customers outside the hospital setting, particularly long-term care providers and institutional pharmacies. Omnicell's most popular product is its Medicine Cabinet, which can store more than 300 different items. The cabinet can actively track what pills it dispensed to which patient, so that drugs can be automatically replenished before they run out.

Source: E-Health Reporter.

Why Medicinal Supply Management has growth potential
As the demand for long-term care increases, providers have also gotten more competitive. Not only must they deliver better care, they must do so at lower cost. Medicine and supply management are two areas where providers have routinely reflected a need for innovation. After all, no one wants to spend an unnecessary amount of time on administrative tasks.

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Unlike its competitors CareFusion, McKesson, and AmerisourceBergen, Omnicell focuses exclusively on medication and supply dispensing; this provides the company with the focus and ability to zone in on exactly what customers require and want.The company emphasizes customer service and routinely checks in with customers for suggestions and feedback.

Whether a customer chooses Omnicell also has a lot to do with Omnicell's ability to interface its automation solutions with the customer's existing information systems. Over time, Omnicell gained a favorable reputation among healthcare providers. I think Omnicell's success in providing positive full-service is what sets the company apart from other competitors. As of November 2014, more than 80% of Honor Roll Hospitals (such as Johns Hopkins Hospital, UCSF Medical Center, Cleveland Clinic, and Mass General Hospital) chose Omnicell. Since 2006, Omnicell has been repeatedly voted the No. 1 vendor for "Pharmacy Automation Equipment".This suggests that while Omnicell may not have been the first mover or the top dog, it is certainly improving its standing among competitors.

According toResearch & Markets, the pharmacy automation market is currently at $3.2 billion. It is expected to grow at 7.6% annually, potentially reaching $4.6 billion by 2019.That's why, even though Omnicell is trading at 40 times earnings, relatively more expensive compared to its peers, I'm still bullish on the company and the growth story behind it.

The bottom line
Randall Lipps has served as CEO and Chairman of the Board since founding the company in 1992. He is well liked at the company (with an 86% approval rate on Glassdoor). Under Lipps' leadership, Omincell has developed into a company recognized for its innovative products and customer-centric culture. In fact, Omnicell is considered one of the top workplaces in the Bay Area.

Omnicell, unfortunately, does not have a strong "massive" appeal -- in other words, not everyone is going to go out and buy himself a medicine dispenser cabinet. However, in the world of healthcare providers (i.e., hospitals, long-term care, pharmacies), demand for such a product is higher. For customers that matter, Omnicell has built a reliable name for itself and has differentiated itself from competitors as the company with the strongest consumer appeal.

Medicine supply management is an up and coming sector that savvy investors should certainly keep watching. And, among all the companies in this market, I believe that Omnicell has the most potential to succeed.

The article The Best Stock in This Under-Loved Growth Sector originally appeared on Fool.com.

Sophia Lee has no position in any stocks mentioned. The Motley Fool recommends McKesson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.