The TSX Venture has had its struggles in recent years, but no matter how dire the circumstances may be, however low oil or certain commodity prices may trade, there are always a few stocks, usually from a hot sector, which outperform. In today’s case, we are referring to healthcare-related issuers.
This is critical to the overall exchange as it promotes optimism and allows profits to be recycled into other sectors, laying the foundation for future growth in weak times.
Patient Home Monitoring and Convalo Health are two healthcare-related issuers and are of these types of stocks. To say both companies grew their revenues ‘quickly’ once listed on the TSX Venture is an understatement. While PHM provided a near 10-bagger between early 2014 and early 2015, Convalo Health more than tripled in value after going public earlier this year.
These companies showed retail investors the power of acquisitions and drove interest in a sector that had been quiet for over a decade. This sector, of course, was the healthcare and the pharmaceutical industry.
While both stocks were among the most liquid on the TSX Venture during their rise to prominence, they have remained among the most liquid during their recent correction.
Patient Home Monitoring drops to multi-month low
Patient Home Monitoring traded 9.9 million shares Wednesday, worth over $11 million. It was by far the most liquid stock on the TSX Venture, but unlike the vast majority of 2014 and 2015, its shares were heading south. Its shares crashed 18% Wednesday to close at $1.03 per share.
Dalsin steps down to non-executive board member
Michael Dalsin, who led PHM from the beginning, and is the current CEO and Chairman of Convalo Health, announced on July 13th that he would be stepping down from Chairman of PHM. Below is a short excerpt depicting the exact language from that press release:
“Additionally, Michael Dalsin and Roger Greene, Chairman and Vice Chairman, respectively will transition to non-executive board members as Casey Hoyt and Mike Moore take over as lead spokesmen for PHM.”
Click here to read the entire press release.
While this had little impact on the market, it cannot go unnoticed, simply due to the growth and success PHM enjoyed under Dalsin as Chairman.
PHM embraces Sleep Management Mantra
PHM cited, in its July 13th press release, the recent acquisition of Sleep Management, a company with $42 million in annualized run-rate revenue, the reasoning behind the appointments of Casey Hoyt and Mike Moore, founders of Sleep Management, as Chief Executive Officer and President, respectively.
PHM may believe its new strategy to generate organic growth through geographic expansion will be better led by the senior leadership team of Sleep Management. For investors who’ve watched PHM rally from $0.22 in 2014 to a high of $2, the news may have been bitter sweet.
Additionally, the company reported that:
“David Hayes will remain on as a key senior executive and member of the executive committee focused on revenue growth.”
Click here to read the entire press release.
In our latest EBook we reveal 50 leaders who took small-cap stocks to stunning multimillion dollar buyouts. The companies these leaders run today are also described in this one of a kind rolodex of some of the top entrepreneurs and business minds, including PHM’s past CEO, David Hayes, operating in North America’s small cap public markets.
Click the below image to get your free copy today.
Increasing Revenue not enough
Despite PHM announcing yet another record for revenue in the past quarter on July 13th, it has not been enough to improve the stock price in recent weeks. Below is a short excerpt from that press release:
“FYQ3 2015 Highlights
Revenue
- Revenue for the quarter rose to more than $19,350,000 which included only June revenue of Sleep Management, as compared to $13,036,000 for the quarter ended March 31, 2015, a 48% increase from the previous quarter and a 250% increase year over year.
- July revenue is expected to exceed $9,700,000 or more than $116,400,000 in annualized run rate revenue.
Profits
- Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose to more than $4,600,000 for the quarter, more than a 60% increase from the previous quarter. This includes $1,500,000 of Adjusted EBITDA for Sleep Management for the month of June 2015.(1)”
Click here to read the entire press release from July 13th.PHM’s market cap is still flirting with $300 million, even after the 50% correction to its stock price.
Was PHM overvalued in April?
On April 10th, just 10 days prior to PHM hitting its all-time high of $2.01 per share, I published an article titled Patient Home Monitoring: valuation metrics update after record revenue reported.
In this article I focused on PHM’s net profit and not just its exploding revenue. Below are two short excerpts that, in hindsight, if you do not read our daily articles often, would have been well worth reading:
“Make sure to not confuse revenue with earnings. Revenue is simply a company’s total sales or gross income; it is commonly referred to as a company’s “top line”.
Earnings are a much more important metric when attempting to value a company as it means net-income, pure and simple.
Patient Home Monitoring reported that,
“Net profit before stock-based compensation(2) exceeded $1,600,000; an increase of 23.5% from the previous quarter.”
(2) Net Profit does not include stock based compensation or change in the IFRS Fair Value of options and warrants expense.
The famed price to earnings ratio is often what market pundits and fund managers work with to quickly determine whether or not the S&P is fairly valued or not.
The S&P 500 PE Ratio was up 0.48% Friday April 10th, to 20.54 as equities rallied.”
While PHM’s revenues and various financial metrics have changed greatly since Q2 2015, below is another key excerpt from my April article on PHM:
“Back to Q2 2015…
Despite PHM’s total quarterly revenues exceeding $13,000,000; an increase of 28% from the previous quarter and 255% from the quarter a year ago, its net profit before stock-based compensation(2) exceeded $1,600,000; an increase of 23.5% from the previous quarter.
Top-line revenue growth is paramount, as ultimately that flow of revenue is where earnings come from, but on its own can sometimes be misleading when bottom-line growth is not taken into context.
At the end of the day, profits or earnings are the key metric.
PHM reported an annualized adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) run rate in excess of $11,400,000. Its market cap was more than 30 times this figure in Friday afternoon trading.
The EV/EBITDA ratio can sometimes be more helpful in valuing a company in comparison to the P/E ratio. The EV/EBITDA ratio should not be compared to a company’s P/E ratio.
The EV/EBITDA ratio is calculated as enterprise value divided by its EBITDA.
At 2:21 PM EST, PHM’s enterprise value was approximately C$395.21 million. By dividing PHM’s Annualized Adjusted EBITDA run rate, reported in yesterday’s press release at in excess of $11,400,000, PHM’s approximate EV/EBITDA ratio today is 34.66.
This is up from yesterday’s 29.43 EV/EBITDA ratio highlighted on CapitalCube.com. Of the 10 peers Capital Cube compared PHM to, the peer medium average EV/EBITDA was 16.73.”
Click here to read more.
PHM’s market cap exceeded $400 million in April and has since fallen below $300 million. Its share price is now down approximately 50% from its high on April 20th. The above article was published on April 10th.
Convalo Health still has Dalsin
While Convalo Health still has its Chairman and CEO, Michael Dalsin, its share price has taken a beating in recent weeks. Convalo Health (CXV:TSXV) fell 8% to close at $0.33 per share Wednesday. Its shares hit a low of $0.30, just 7 cents above its 52-week low from earlier this year.
Convalo hit that low of $0.23 on February 20th; four days after its shares began trading on the TSX Venture.
Convalo Health – 1 Month Chart
What’s interesting about Convalo’s decline is that it comes days after announcing another record quarter for revenue. Below is a short excerpt from July 22nd’s press release:
“Quarterly Revenue
- Revenue for the second fiscal quarter of operations (ending May 31st, 2015) was $2,318,458, as compared to $1,201,225 last quarter, an increase of 93% quarter over quarter.
- July 2015 revenue is expected to be in excess of $2.2 million or over $26 million annualized current run rate revenue due to the acquisition of Hollywood Detox and ARTS.”
Click here to read the entire quote and press release.
Michael Dalsin, Chairman and CEO of Convalo commented that:
“Although we’re very happy to see the tremendous organic revenue and EBITDA growth the Hollywood center generated since last quarter, these numbers are a bit out-dated.”
And that, “Since the acquisition of Hollywood Detox and ARTS, we have almost tripled our reported revenues run-rate…”
Click here to read the entire quote and press release.
Both Patient Home Monitoring and Convalo Health will likely remain among the most liquid stocks on theTSX Venture for the foreseeable future. Acquisitions will likely continue to fuel new revenue streams and, hopefully, higher margins for the two company’s moving forward.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
This is not an invitation to purchase any securities mentioned in this report. Pinnacle Digest does not endorse or recommend any of the referenced securities. At the time of publication and distribution of this report (1:30AM PST on July 29, 2015) neither PinnacleDigest.com, its employees or consultants owned shares in any of the mentioned companies in this report. This article is intended for informational and entertainment purposes only. The author of this article bears no liability for losses and/or damages arising from the use of this article. This report may contain technical or other inaccuracies, omissions, or typographical errors, for which PinnacleDigest.com and its parent company assumes no responsibility. We do not guarantee that any of the companies mentioned in this report or on PinnacleDigest.com will perform as we expect, and any comparisons we have made to other companies may not be valid or come into effect.
All statements in this report, other than statements of historical fact, should be considered forward-looking statements. These statements relate to future events or future performance. Much of this report is comprised of statements of projection. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.
PinnacleDigest.com and its employees are not a registered broker-dealer or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Nothing in this article should be construed as a solicitation to buy or sell any securities. This article is intended for informational and entertainment purposes only. The author of this article bears no liability for losses and/or damages arising from the use of this article.
