Please note, news came out this morning (7/16/20) on CloudMD, the subject of this article. The news is not addressed in this piece, but is considered to be good news and will be discussed in a future write-up.
Gold is at a nine-year high. Dozens of gold juniors have seen their share prices soar this year. Investors see the writing on the wall; gold fundamentals are incredibly strong due to COVID-19 induced gov’t debt issuance, money printing & deficit spending, with no end in sight…
Once people realize a paradigm shift is at hand, they’re not afraid to buy smaller, riskier companies, seeking large gains. COVID-19 is ushering in a number of paradigm shifts, but few as clear-cut as gold. Readers beware, some trends have already been exploited. Online shopping? Amazon is up 92% since March. Teleconferencing? Zoom up 140%. Online education? K-12 Inc., +175%. Movie streaming? Netflix+110%.
Telemedicine is hot & will remain strong for years, not months or weeks….
Like gold, I think telemedicine’s time has come. COVID-19 has vaulted this niche industry into the Big leagues in a matter of months rather than years. Regulators were forced to rapidly understand and get behind tele-sessions. Insurance companies have had to do the same. Truly a win-win-win for patients, doctors / nurses & medical practices.
If one agrees that telemedicine is a bona fide paradigm shift in health care services, then one should consider investing in smaller companies with potentially more upside (albeit with commensurately more risk) than firms like $50B Veeva Systems, which is +104% since March, $24B Teladoc +114%, or $14BLivongo Health +430%!
Much of telemedicine is new, everyone is learning as they go. Successes will be handsomely rewarded. Well funded, small, smart, fast, nimble companies probably have a 2 or 3-year window to get it right. The top comanies will get taken out at attractive valuations.
CloudMD well positioned to thrive in telemedicine, then get acquired
A company that’s ideally positioned to rapidly expand in telemedicine and potentially be acquired is CloudMD Software & Services (TSX-V: DOC) / (OTCQB:. DOCRF) has a market cap of $72.7M and an Enterprise Value (“EV“) {market cap + debt – cash} of ~$61M. Revenue is growing very rapidly, potentially increasing by > 400% from $6.8M in 2019 to the consensus estimate of $34.7M in 2021.
CloudMD is revolutionizing the delivery of healthcare by providing patients easy, fast access to all aspects of their care, via phone, tablet, laptop or desktop computer. The Company offers SAAS-based solutions to medical clinics across Canada. That’s on top of owning, operating brick & mortar clinics and acquiring new facilities.
Management has developed or acquired proprietary technology that delivers high-quality care through connected primary care clinics, telemedicine & artificial intelligence. CloudMD currently provides service to an ecosystem of 376 clinics in eight provinces, over 3,000 licensed practitioners, with access to nearly 3 million patient charts.
Hybrid business model; clinics + telemedicine + SAAS-like margin potential
Following the SAAS business model, CloudMD has the potential to be a high-margin, stable (low churn), rapidly growing company, with long-lasting (recurring) revenue. In the chart below, CloudMD has the fastest [expected] revenue growth (2021 over 2020) at 101% vs. an average of 31%. Part of the reason is that revenue is launching off of a small base, but the Company also compares favorably on its EV / Rev. multiple (3.5x / 1.8x) vs. averages of (13.1x / 9.9x). So, fastest growing, cheapest valuation.
Management is prudenly pursing a hybrid approach to healthcare delivery in Canada. In addition to telemedicine the team continues to acquire, own & optimize conventional clinics. I believe this approach captures the most efficient & cost-effective way to gain market share. There’s a finite number of doctors, nurses & family offices. Rolling them up into CloudMD, before they join other companies, is a winning strategy.
Medium-sized companies can only grow so fast organically. They need to acquire growth in order to make themselves attractive to larger players. There are a lot of small cap telemedicine ventures, but only a few are high-quality, with visionary management teams, strong balance sheets & rapid revenue growth. Fewer still offer compelling valuation.
After raising $15M last month, management has amassed a sizable war chest with which to make accretive acquisitions. CloudMD is making acquisitions of businesses at under 1x revenue, integrating & streamlining them, making the revenue worth more.
Larger players pay higher revenue multiples, M&A critically important
Larger entities can afford to pay well above 1x revenue because they unleash even greater synergies & economies of scale, and gain the opportunity to cross-sell new services. It appears that management has the financial wherewithal to acquire about $30M in annual revenue. That’s 86.5% of the consensus estimate for 2021 of $34.7M.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DOCRF over the next 72 hours.
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