CloudMD is undervalued, says Research Capital

Research Capital analyst Yue (Toby) Ma still thinks the sky’s the limit for CloudMD Software and Solutions (CloudMD Software & Services Stock Quote, Chart, News, Analysts, Financials TSXV:DOC) after the healthcare tech company recently delivered second quarter results. In an update to clients on Friday, Ma maintained a “Buy” rating and target price of $3.30/share on DOC for a projected return of 76 per cent.

Founded in 2013 and headquartered in Vancouver, CloudMD Software and Solutions is a health care services and technology company focused on digitizing the delivery of health care.

Ma said CloudMD’s Q2 results came in-line with expectations. CloudMD reported $15.7 million in revenue, beating the Reuters consensus quarter projection of $15 million and Research Capital’s $15.6 million projection. Compared to a $2.8 million topline in the second quarter of 2020, the year-over-year increase was a whopping 461 per cent.

CloudMD has completed the process of realignment under three primary verticals –  clinic services and pharmacies (CSP), digital services and enterprise health solutions (EHS). CSP comprised $6.6 million in revenue for the quarter compared to $2.3 million in the same quarter last year, digital services accounted for $4 million in revenue compared to $500,000 in Q2 2020, while the remaining $5 million came from the EHS vertical, which was nil in Q2 2020.

The company reported a negative adjusted EBITDA of $720,000 to match the Research Capital projection while coming in slightly ahead of the $800,000 loss projected by the Reuters consensus. CloudMD had negative $2 million in adjusted EBITDA from the same quarter in 2020.

The company also reported a net loss of $6 million for the quarter compared to the Research Capital estimate of a $3 million net loss and a $2.8 million loss in the same quarter of 2020, though Ma notes that $2.9 million of the loss in the quarter was attributed to acquisition-related costs.

CloudMD completed a pair of acquisitions in the quarter, first completing a $60 million deal ($30 million in cash, $30 million in common shares at $3.75/share) for VisionPros, a vertically integrated digital eyewear platform, then completing a $68 million deal ($30 million in cash, $38 million in common shares at $2.30/share) for Oncidium, a  health management company with a client base of over 500 corporate and public sector clients across various industries.

“With over 25 years in the employer healthcare market, Oncidium is an ideal fit with the overall CloudMD strategy for the Enterprise Health Solutions Division,” said Luciano M. Barbuto, CEO of Oncidium in CloudMD’s June 28 press release announcing the acquisition, “We are at a pivotal time where employers are dependent on their solution providers to support their workforce’s health and wellness issues, and to assist in providing leadership and guidance with respect to their ongoing, increasing healthcare costs.”

CloudMD stock forecast 2025

Ma forecasts CloudMD to be on a solid growth trajectory through the middle of the decade, projecting $96.3 million in revenue for 2021 for a 542 per cent year-over-year increase, with projected increases to $166.1 million in 2022 (72.5 per cent year-over-year increase), $192.1 million in 2023 (15.7 per cent year-over-year increase), $213.5 million in 2024 (10.6 per cent year-over-year increase), and $231.7 million in 2025.

Ma also expects the company’s adjusted EBITDA to turn positive for 2022 and beyond. After an expected loss of $386,000 in 2021, Ma projects adjusted EBITDA OF $11.2 million in 2022, $13 million in 2023, $16.7 million in 2024 and $18.2 million in 2025.

Research Capital’s valuation data also shows positive progress for CloudMD, with the P/Sales multiple dropping from 28.9x in 2020 to a projected 4.5x in 2021, 2.6x in 2022, 2.3x in 2023, 2x in 2024 and 1.9x in 2025. With positive returns projected for 2022 and beyond, the P/EPS multiple projections start at 84.9x in 2022, then dropping to 64.1x for 2023, 42.1x in 2024 and 35.1x in 2025.

Similarly, the company’s P/opCFPS multiple starts from 2022 at 48.5x, then dropping to a projected 38.6x in 2023, 29x in 2024, and 25.3x in 2025.

With multiple acquisitions completed during 2020 and the first half of 2021, Ma believes the company’s focus will be on driving organic growth through its ecosystem of businesses and client bases to create cross-selling opportunities.

“During the pilot phase, 11K employees have been onboarded to the platform and achieved a retention rate of 48 per cent and a satisfaction score of 73 per cent – above DOC’s expectations,” Ma said. “We believe the initial success of the Complete Health Platform should attest to the feasibility of DOC’s organic growth strategy – boding well for future growth.”

Ma also said DOC is currently undervalued compared to its peers, where the analyst has estimated CloudMD’s 2022 EV/Sales multiple at 2.2x compared to its peer average at 3.9x. On 2022 EV/EBITDA, Ma has DOC at 33.4x compared to the peer average at 37.1x.

CloudMD opened Monday trading at $1.73/share on the TSX Venture Exchange, down a cent from its Friday closing of $1.74/share. Overall, the stock price is down 27 per cent for the year to date, reaching a high point of $3.14/share on February 16.