Protech Home Medical (Protech Home Medical Stock Quote, Chart, News TSXV:PTQ) is on a spectacular run in recent months but Bruce Campbell of StoneCastle Investment says the stock is still comparatively cheap.
Speaking on BNN Bloomberg on Thursday, Campbell offered up Protech as one of his Top Picks for the year ahead.
“Protech is one that I’ve used as a past pick before but it just continues to stay in this valuation range. It moved up and then they did a financing and so it's pulled back again,” Campbell said. “I just couldn't help but come back to it again because we think there's going to be a huge opportunity.”
A health equipment and services business operating in the United States, Protech provides end-to-end respiratory options for the home care market, including ventilators, PAP therapy and sleep apnea machines.
Campbell says that Protech aims to consolidate in the highly fragmented market for durable medical equipment (DME) in the US, which currently has over 6,000 providers, 70 per cent of whom have annualized revenues under $15 million.
“They operate right now in ten states at 40 different locations,” Campbell said. “This is a highly fragmented business.”
“Protech has great reoccurring revenue with about 68 per cent of their revenues recurring. And now that they've cashed up their balance sheet they've got a huge opportunity to take this fragmented business and consolidate it. They’ve made some acquisitions in the past and when they have they've always been a creative to cash flow,” Campbell said.
Since bottoming out in March at $0.47 per share the stock has done well, now trading in the $1.10 – $1.20 range and currently up 18 per cent for the year. Over the past 18 months, the stock is up 109 per cent.
Campbell said PTQ is trading below its peers in the DME space.
“You look at the valuation of the company and it trades at about half of where its peers trade,” said Campbell. “You’re going to get two different abilities for this to grow: one is through valuation multiple growth and the other is from an earnings growth perspective both organically, and then also through acquisition now that they've cashed the company back up.
Cincinnati-based Protech announced last week the close of a $31.8-million bought deal prospectus offering of 25 million units at $1.15 per unit, which included a 15 per cent over-allotment. The company plans to use the proceeds to firm up its cash position and to go ahead with M&A activity.
“We are thrilled to announce the closing of this oversubscribed financing, as it represents an important milestone in Protech’s evolution,” said Greg Crawford, CEO and Chairman, in a press release. “We are excited to further execute on our growth strategy and this injection of capital will allow for an aggressive acceleration of our plan.”
Protech last reported earnings in mid-May where its fiscal second quarter 2020 featured revenue up 16 per cent year-over-year to $24.1 million and adjusted EBITDA up 30 per cent to $4.9 million.