Buy CloudMD for exposure to digital health sector, this investor says

It’s a space that got a lot of attention during the pandemic but has experienced a pullback this year, but the digital health sector should be on a long-term growth trajectory as patients and providers become more comfortable with virtual healthcare and the industry takes advantage in the wealth of tech now available in the field. 

And one company that is definitely worth watching is CloudMD Software & Services (CloudMD Stock Quote, Charts, News, Analysts, Financials TSXV:DOC), which has been down on its luck in 2021, but according to portfolio manager Stephen Takacsy CloudMD has been making considerable noise through organic development and M&A activity combined.

“It’s a space we’ve been looking at very carefully for the last few years, and we’ve invested in CloudMD more recently,” said Takacsy, CEO and chief investment officer at Lester Asset Management, who spoke about CloudMD on BNN Bloomberg on Monday.

“It’s one of the fastest growing healthcare technology solution providers. We’re looking at it really as a technology stock, and they’re making a big push into enterprise, health solutions,” he said. 

“They have a one-stop patient shop for integrating primary care, mental health, eye and other specialty care for employers and insurance companies. They made a series of very targeted digital platform acquisitions which they’re in the process of integrating. They’re very confident that they’re going to exceed their $140 million revenue run rate with positive EBITDA of $5-$10 million next year,” Takacsy said.

Vancouver-based CloudMD saw its stock rise in 2020 along with a number of names in the sector as the markets took a shine to COVID-19-friendly approaches to the traditional healthcare space. DOC went from just $0.35 at the start of 2020 to $2.38 by the year’s end, representing a 580 per cent return.

But this year has been a different story, with the stock heading steadily south to where it now trades around $1.60 per share. 

Operationally, the company continues to progress, however, showing in its most recently reported quarter a 461 per cent upgrade in revenue to $15.7 million. That topline beat the Street’s estimate at $15 million; meanwhile, EBITDA was also a beat at negative $720,000 compared to the expected negative $800,000.

On the acquisition front, CloudMD recently completed a $60-million buy of eyewear platform VisionPros and a $68 million acquisition of health management business Oncidium. Before that, the company earlier this year acquired employee and student-focused assistance program Aspiria and specialty drug management and patient support platform Rxi.

All told, CloudMD now serves over 7,000 psychiatrists, about 4,500 therapists and counsellors, about 4,000 psychologists, over 22,000 family physicians, over 34,000 medical specialists, over 1,500 allied health professionals, over 500 clinics and over five million individuals. 

“Through its team-based, patient-centric approach, CloudMD provides one connected platform for patients, healthcare practitioners, and enterprise clients to address whole-person, coordinated care. The Company has a multi-pronged growth strategy which focuses on organic growth, accretive mergers and acquisitions and leveraging assets across all divisions,” said the company in its second quarter 2021 press release on August 25.

“CloudMD’s primary focus is driving organic growth by realizing synergies across its healthcare ecosystem. The Company’s organic growth will be largely driven by: (1) strengthening and broadening channel partners; (2) realizing cross-selling opportunities to existing customers across CloudMD; (3) the deployment and adoption of the Complete Health Platform in the second half of 2021; (4) new product launches to existing customers (e.g. iCBT); and (5) US expansion of its North American offerings,” the company said.

Takacsy said CloudMD is now one of his Top Picks for the 12 months ahead.

“We think it’s a great opportunity to get into the space because all these stocks have been very weak,” Takacsy said. “You’re getting a quality company with quality assets at less than 3x revenues, and the peers are trading at much, much higher multiples.”

“This is the horse that we think is going to win the race in this very interesting space,” he said.

Also high on CloudMD is analyst Rob Goff of Echelon Capital Markets, who in an early July report called the company one of his Top Picks for the third quarter. Goff said with a recently secured $62 million credit facility and the Oncidium purchase closed, CloudMD has a robust financial position from which to continue its expansion plans.

“We look for the successful integration of DOC’s on-strategy acquisitions to enable the Company to realize on its vision to become a patient-centred, comprehensive care provider with a North American and potentially broader mandate serving both the EHS and individual care markets. We look for further expansion in the US and consider the potential for DOC to strategically enter the European Enterprise Health market,” Goff wrote in a July 4 report.