RE:RE:RE:RE:FabriceFabrice final remarks on PHM in email:
I’m still getting lots of questions about PHM. I don’t own the stock as mentioned, but will try to answer them. This will be the last update on PHM unless I decide to buy it again.
The first thing to understand is that there was a massive bubble in ALL healthcare stocks. PHM was never worth $2/share. It wasn’t worth $1.50 either. That’s why I suggested selling it at $1.20. But it’s not just PHM. Much bigger names are suffering the same fate. Concordia Healthcare shares changed hands for $110 only last month. Today they can be bought for $42. Valeant, Nobilis, PHM, Concordia - they’re all getting smashed, some for specific reasons, others in sympathy with the overall sector selloff as institutions rotate money out of healthcare.
PHM had a particularly bad week. I had mentioned not long ago the possibility that the new management team might temper expectations. They did that all right. The latest selloff is rooted in the company’s new investor presentation, where it seems current management is moving away from the guidance provided by previous management. In particular, the company is telling investors it will focus on organic growth and integration of existing companies rather than acquisitions. This has reduced the forward revenue assumption from about $200 million to $155 million. But it also makes some investors think that there may be issues with integration, or that maybe this is a way to sugarcoat problems.
It’s hard to say what’s happening but PHM simply got too expensive, and as I said on BNN last week in reference to Concordia, just because a stock was once worth $110 (or $2 in the case of PHM) doesn’t mean the business is worth that, and therefore it’s wrong to assume the stock is going back to those levels. Neither stock is, at least not any time soon.
If you still own PHM, the stock looks statistically cheap here at about 8x forward earnings and with $22 million in net cash (i.e. cash less debt), but that’s assuming those estimates are accurate. With all the moving parts it’s difficult to know. At this point, if you own it I think you have to prepare for more downward pressure on the stock. It might be reasonably priced but it can get cheaper.