The stock may be down by a lot but if you’re looking for an overdone pandemic pullback then portfolio manager Stephen Takacsy has the right prescription in CloudMD Software & Services (CloudMD Stock Quote, Charts, News, Analysts, Financials TSXV:DOC). Takacsy says the digital healthcare company has been firing on all cylinders of late but the market has yet to respond, making for a unique buying opportunity.
“We really like this company. It’s one of two that we own in the sector,” said Takacsy, president and CEO of Lester Asset Management, who spoke on BNN Bloomberg on Monday.
“The health tech sector has been absolutely decimated this year. People have been treating it like a pandemic play, but really the digitization of healthcare has only just begun and needs to take place,” he said.
Formerly known as Premier Health Group before a name and strategic focus change in early 2020, Vancouver-based CloudMD is the owner and operator of medical clinics offering onsite and telemedicine services. The company also has an IT solutions platform for clinical practitioners and care solutions for enterprise clients. In total, CloudMD currently services thousands of psychiatrists, psychologists, therapists, family physicians, medical specialists and allied health professionals at over 500 clinics across North America.
The company saw its share price soar from sub-$0.50 territory as the pandemic hit last winter to over $3.00 by October of last year. But 2020 has been rough on stocks like CloudMD, which is currently back down to around $1.20 per share. The pullback has hit other stocks in the digital health space, with Canadian names like WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) and Carebook Technologies (Carebook Technologies Stock Quote, Charts, News, Analysts, Financials TSXV:CRBK) dropping significantly this year, while US virtual healthcare company Teladoc Health (Teladoc Health Stock Quote, Charts, News, Analysts, Financials NYSE:TDOC) is also down by about half.
But CloudMD has been delivering operationally. Its most recent quarter came in ahead of expectations on revenue and showed positive EBITDA. The company reported $39.2 million in revenue for its third quarter 2021, delivered at the end of November, which represented over a tenfold rise in revenue from a year earlier. The Q3 adjusted EBITDA was $0.8 million and the net loss was $4.2 million or $0.02 per share compared to a oss of $2.7 million or $0.02 per share a year earlier.
CEO Dr. Essam Hamza called it a milestone quarter for the company.
“We’ve onboarded 560,000 individuals onto our Comprehensive Integrated Health Platform and are providing valuable data-driven outcomes, which is proven by our successful program with Sun Life where 89 per cent of those experiencing depression and 91 per cent of those experiencing anxiety noticed major improvements. We’ve also achieved positive client outcomes across engagement, attachment rate, and net promoter scores,” said Dr. Hamza in a press release.
As well, CloudMD recently announced a big deal with insurer Sun Life where after a seven-month pilot run it will be making its Mental Health Coach services available to all Sun Life members, while on the M&A front the company recently announced an agreement to acquire digital mental health platform MindBeacon in a deal worth $116 million.
Takacsy said the Sun Life deal could add as much as $40 million in revenue for CloudMD while the MindBeacon acquisition should fit in well with the Sun Life business as well as MindBeacon’s own growing list of clients.
“Things are all really going in the right direction for this company,” Takacsy said. “I think they’re going to really exceed expectations next year and get back to EBITDA-positive after they digest the MindBeacon acquisition in the next quarter.”
“I think it’s a very good entry point into one of the most dynamic companies in the sector,” he said.
Takacsy said while the whole digital health sector has come down quite a bit the idea that companies like CloudMD are merely pandemic plays with dimmer prospects once (if) everything goes back to normal is wrongheaded since the telemedicine space is here to stay. And as far as the run-up in the sector goes, there was likely some froth from investors jumping on the bandwagon, he says.
“Some of these stocks were very overvalued a year and a half ago or a year ago, even. And a lot of them, [the assumption was] they’re just pandemic plays in telehealth. But they’re really not,” he said.
“They’re all different, but some of them are really at the forefront of the digital revolution in healthcare, which badly needs to happen, pandemic or no pandemic. I think investors were just playing a momentum trade, you know, like they were playing cannabis stocks,” Takacsy said. “But you have real businesses here that are going to show significant growth.”
“Not all companies are identical — they’re all pursuing different strategies — and I think now’s the time you want to get in. Everybody’s sort of panic selling and tax loss selling [but] this will be one of the most promising sectors over the next few years if not longer. I’m convinced of that,” he said.
Disclosure: Nick Waddell and Jayson MacLean own shares of WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.