CloudMD is a wait-and-see at the moment, this investor says

With the telehealth sector down by plenty it’s no surprise that Canadian stock CloudMD (CloudMD Stock Quote, Charts, News, Analysts, Financials TSXV:DOC) has had its troubles over the past while. But the worries go a little beyond the share price decreases, says portfolio manager Stephen Takacsy, who thinks there’s good reason to sit on the sidelines for the time being.

Vancouver-based CloudMD began trading on the TSX Venture two years ago, with the company formerly known as Premier Health making a lane change into digital health and telemedicine. The company has medical clinics, rehab clinics and pharmacies in BC, Ontario and the United States to go along with its suite of digital offerings through its SaaS Digital Services and Enterprise Health Solutions businesses. CloudMD’s current roster includes about 600 clinics (about 400 in Canada and 200 in the US) and about 4,000 licensed practitioners to cover about eight million charts on its Electronic Medical Records (EMR) network. 

The company just released its first quarter 2022 financials featuring revenue up 372 per cent to $41.4 million based on a healthy dose of inorganic growth over the past 12 months. In particular, CloudMD saw $26.0 million in revenue in the Q1 from its Enterprise Health Solutions segment due to revenue coming from the MindBeacon acquisition, first announced last November and closed in mid-January.

“In Q1 we delivered strong performance aligned with a company commitment to generating synergies, profitable execution, and continued growth. Innovation remains a key Company focus with the launch of our newly branded integrated personalized connected health platform, Kii. This is a milestone as we transform the way individuals receive healthcare,” said Interim CEO and President Karen Adams in a May 30 press release.

The company continues to make strides in terms of client acquisition, and Takacsy, president and CEO of Lester Asset Management, sees CloudMD’s focus on enterprise employee health and wellness as a great growth area.

“They’re one of the fastest growing healthcare technology providers and they’re making a big push into enterprise health solutions by offering employers and insurance companies a centralized holistic platform that integrates primary care, mental health and other specialty care, and they’ve recently signed a big contract with Sunlife,” said Takacsy, speaking on BNN Bloomberg on Monday.

“It’s very important for employers to deal with employee health issues quickly to reduce absenteeism, which became a big problem during the pandemic and still remains a problem,” he said.

But CloudMD remains in the middle of a major C-suite remodelling, with the announcement in February that then-CFO Daniel Lee would be stepping down, followed in April that founder and CEO Dr. Essam Hamza would be leaving his post, putting Adams into the interim role until a successor is chosen.

At the time, Hamza, who remains on the Board and has a strategic advisory role with the company, said due to the ongoing evolution of CloudMD that it was “time for the Company to move away from its founder.”

“The business has changed from a connected network of clinics to a leading comprehensive healthcare provider, and I could not be prouder of the team on their ability to execute,” Hamza said in an April 6 press release.

With a market cap current just under $150 million, CloudMD saw its share price rise sharply over the back end of 2020 as market interest in the sector peaked, but the downward slide which began in early 2021 hasn’t shown much sign of stopping. The stock went from just over $0.50 per share in August of 2020 to as high as $3.17 by October of that year, with the pullback beginning around February-March of 2021. Starting in May of this year, DOC actually dipped below the $0.50 mark and is currently hovering around that level. 

Takacsy said sorting out the leadership remains a priority for CloudMD.

“They’re in the process of integrating a flurry of acquisitions, and stock has come down to about 1x the run rate, but the profitability has been pushed out because they made an acquisition recently of a company called MindBeacon, so the market is concerned about that,” Takacsy said.

“We’re also a bit concerned by the recent successive resignations of the CFO and then the CEO who stepped back and the chairman resigned, so that was raises some concerns even though we think the company is extremely well-managed by the current CEO Karen Adams,” he said.

“But we’re taking a little bit of a wait-and-see approach to see if the financial results improve in terms of organic growth and profitability and also to see some new good directors appointed to the board as well,” he said. “So, I think this is a little bit more of a wait-and-see at this point, even though the stock is has come down a lot.”