With the takeout of Vancouver-based PNI Digital Media by Staples imminent, Paradigm Capital analyst Gabriel Leung has assigned a new Top Pick from his coverage universe. As it turns out, the analyst didn’t leave British Columbia to do so.
In a research update to clients this morning, Leung assigned Top Pick status to Kelowna’s QHR Technologies (TSXV:QHR). Leung has a $2.00 target on the stock, implying 63% upside at the time of publication.
Leung says the continued adoption of Electronic Medical Records and its relatively low penetration rate to date means QHR has plenty of runway left. Add the company’s recent entry into the U.S. market, and the Paradigm analyst thinks its current 10.4x EV/EBITDA valuation is cheap. He notes that comparable high recurring revenue software-as-a-service companies are trading at more than 18x EV/EBITDA.
For Leung, the “icing on the cake” is the possibility that QHR, like his previous top pick, will be taken over. In this case, he says the top candidate is clear, as Telus has made an aggressive entry into the Electronic Medical Records space in recent years. In his view, QHR would be a “natural fit” for Telus.
For now, Leung says QHR is positioned extremely well for growth because it has very high recurring revenue and a strong balance sheet that might enable it to make further acquisitions in both Canada and the U.S.
Shares of QHR closed today up 6.6% to $1.29.
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