RE:Breakout StockI read that too. It's good to see them focus on it.
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Globe and Mail
Jennifer Dowty
October 27, 2020
On today’s Breakouts report, there are six stocks on the positive breakouts list (stocks with positive price momentum), and 51 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appeared on the positive breakouts list last week – Profound Medical Corp. ( PRN-T -2.34%decrease).
Year-to-date, this small-cap health care stock has rallied 55 per cent. The stock has a unanimous buy recommendation with an average one-year target price implying a potential gain of 37 per cent over the next 12 months.
This is a stock best suited for consideration by longer-term investors. The company is in the infancy stage of its commercialization strategy and is not yet profitable. Successful execution by management on its commercialization strategy will be a key driver for the stock price.
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Ontario-based Profound is a medical device company.
On the second quarter earnings call, Chief executive officer Arun Menawat summarized management’s three near-term core objectives, “One, additional TULSA-PRO site agreements; two, expanding TULSA adoption, both in terms of procedure volumes and types of patients treated; and three, enhancing our website, marketing and education programs to provide even more comprehensive resources for patients and physicians.” radiation-free.
On the second quarter earnings call, the chef Executive Officer Arun Menawat summarized management’s three near-term core objectives, “One, additional TULSA-PRO site agreements; two, expanding TULSA adoption, both in terms of procedure volumes and types of patients treated; and three, enhancing our website, marketing and education programs to provide even more comprehensive resources for patients and physicians.”
On July 21, the company completed a US$46-million financing, issuing over 3.1-million shares at a price per share of US$14.50. As of July 31, the company had approximately $112-million of cash on its balance sheet.
According to Bloomberg, the Business Development Bank of Canada owns approximately 7 per cent of the shares outstanding.
The stock is dual-listed. It trades on the Toronto Stock Exchange under the ticker PRN, and on the Nasdaq with the ticker PROF.
Investors are focused on revenue growth and future earnings and profitability. Management’s execution on the following growth pillars are key drivers for the stock price.
1) Installations. Securing agreements with additional imaging centers and teaching hospitals. Currently, the TULSA-PRO system is only available at a handful of locations.
In January, Profound entered into an agreement with RadNet Inc. ( RDNT -7.10%decrease
) to install TULSA-PRO systems at three locations in California. RadNet has over 330 imaging centers in seven U.S. States. There is the potential to expand this agreement to other locations.
Other locations using the TULSA-PRO system include the Mayo Clinic in Florida, UT Southwestern Medical Center in Texas, Busch Center in Georgia, Scionti Prostate Center in Florida, and the WellSpan Advanced Prostate Care Center in Pennsylvania.
2) Procedure growth. The company recently adopted a pay-per-procedure model in the U.S., charging approximately US$7,700 per procedure. As more procedures are completed, more revenue will be generated for the company.
3) Medical coverage. Currently, there is no significant reimbursement available from private insurers and government-run health plans. Reimbursement coverage is an important milestone for the company to achieve in order to make this medical treatment more affordable to individuals and thereby broaden its adoption.
Management has an intermediate and longer-term reimbursement strategy. In 2021, management believes it may have a C-code, and by the end of 2021, the company may be able to apply for a CPT (Current Procedural Terminology) code, which then takes about 18-months to be issued by the AMA (American Medical Association).
4) Expansion to other therapies. Management believes its technology can also be used to treat BPH, benign prostatic hyperplasia, a common medical condition in elderly men characterized by an enlarged, noncancerous prostate.
Quarterly earnings
Given that the company is still in the early stage of commercializing its products, mainly its TULSA-PRO system, investors are not as focused on quarterly earnings results. For now, the key focus is the progression of its commercialization strategy.
On Aug. 6, the company reported its second-quarter financial results. Revenue was $1.42-million, up 148 per cent from $574,109 reported during the same period last year. The gross profit margin was 41 per cent. Research and development costs totaled $2.38-million. General and administrative expenses amounted to $2.28-million, and selling and distribution costs were $1.38-million. The company reported a net loss of $7.3-million or a loss per share of 46 cents.
The company will be releasing its third-quarter financial results after the markets close on Thursday Nov. 5.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts' recommendations
This health care stock with a market capitalization of $444-million is actively covered by seven analysts, and all seven analysts have buy recommendations.
The firms providing recent analyst coverage on the company are: Alliance Global Partners, Canaccord Genuity, Cowen, Jefferies, Lake Street Capital Markets, Paradigm Capital, and Raymond James.