$100/share stock price?I made a posting over on CEO.ca suggesting a large capital gain for some investors in RHT was possible, to which an alert poster asked if I was implying that a $100 per share stock price was possible. Here is an excerpt from my reply:
I wasn't suggesting the possibility of a $100 stock price. An investor with >1M shares could reach a 9 figure profit on his/her RHT position with a lower stock price.
Having said that, let's run with it for a moment. What would it take to reach the $100/share mark? At a 10x price/revenue valuation, 1M onboarded patients at $600/year/patient and 200M shares would result in a value of $30/share. (Now, as the CEO has pointed out, valuations as high as 40-50x revenue have been had, but let's not go there, although I do think one could easily entertain a p/rev of 20x.) So, it would take something in excess of 3M patients onboarded to reach a $100 stock valuation.
How likely is 3+M patients? If you take NRs and the CEO's statements at face value, the company is approaching a total of 3/4M patients now (pipe + already onboarded), plus it has its own larger deals in the works, plus it is jointly responding to RFPs with Cognizant, plus it has access to Cognizant's domestic and international client base, plus it will keep signing smaller deals. Project that out a few years and 3+M patients doesn't seem at all unlikely.
Up until now, I would have factored in the argument that the number of patients would have to be a lot higher than 3+M because of the usual compensation-related dilution. Given the likelihood of significant free cash flow being thrown off starting this year and the possibility of share buy-backs, I'm inclined not to make any adjustments for that right now.
One small additional point. Some here would still consider these type of calculations to be premature until A/R collection has been proven. That's a fair argument, although I think with the involvement of KPMG and the latest 2 large partnerships, as well as the dramatic expansion of CMS initiatives, this argument is getting thinner and thinner over time.