Opinions
Ryan Modesto
CRH Medical Corp.
CRH-T
DON'T BUY
Nov 14, 2017
Stock price when the opinion was issued
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Has been badly beaten up. In 2014, revenues were about $11 million, and are now looking at about $100 million. BV is around $.85, so it is still trading at around 3X BV. The important thing is that insiders have been selling like crazy. When this happens, that is not a good sign. Not a contrarian stock to his way of thinking.
He was one of the first buyers. He sold half his position when it was disproportionately high and then the rest on the way down. The market has lost confidence in management, who also sold a lot of shares in the $7 range. If it broke through $3.30 on heavy volume he would take a good look but there are better options until then.
Had this in his Growth portfolio, and it just didn’t work out. A situation where a company gets oversold. It will probably have a good January bounce because of all the tax loss selling that has probably occurred over the last couple of weeks or months. He is having a hard time with this. Would like to support it on valuation, but in terms of execution it has issues with payor codes changing, and the revenue growth is largely beyond the company's control. They haven't handled the past year very well. He would put this in the "OK" category, but with 10,000 public companies to choose from, it is well low on his list.
Their business has been cut back, which is why the stock price had dropped. Feels they continue to be in the "rinse and repeat" mode. They make an acquisition, amalgamate it, bring it into their operation, and increase the business through their marketing, and then go and make another acquisition. Management feels there is lots and lots of room for them to continue this way. The stock looks like it has built a bit of a base and is trying to move higher. Suspects the worst of the news is out, and the market will probably continue to warm up to it.
Thinks management got caught off guard with the Medicare/Medicaid changes. Listening to the calls, he didn’t have a lot of confidence. Their business model is a bit broken now. With the share price and valuation so low, they are not getting as much bang for their buck now. Heading into the tax loss season, this is probably going to be one of the big targets. He would sit on the sidelines, at least until the new year.