Take a pass on Think Research stock, says Desjardins

Thinking about digital health software solutions company Think Research Corp (Think Research Corp Stock Quote, Charts, News, Analysts, Financials TSXV:THNK)? Desjardins Capital Markets analyst Jerome Dubreuil says investors had better wait on the sidelines a little longer with this one. 

Dubreuil reviewed the latest quarterly results from THNK in a Wednesday report to clients where he reiterated a “Hold” rating and $0.65 target price on the stock, translating at press time to a one-year potential return of 86 per cent.

Toronto-based Think Research has knowledge-based digital tools for healthcare professionals to support clinical processes and help standardize care, with customers in the enterprise, hospital, health region and government levels and currently licensing its solutions to over 14,200 facilities and over 320,000 healthcare providers.

Think delivered its first quarter 2023 financials on Monday, showing record quarterly revenue of $21.8 million, up eight per cent year-over-year, and gross profit of $11.4 million compared to $9.1 million a year earlier. Adjusted EBITDA was positive $1.1 million compared to a loss of $0.3 million a year ago.

In its commentary, the company said that with the bulk of its revenue coming from recurring and multi-year contracts, Think has a level of protection against short-term macro disruptions. In terms of growth, management said it intends to focus on improve margins by “becoming an increasingly essential data solutions provider” for healthcare practitioners.

“Think is in a great position to help constrained healthcare delivery systems improve access to high quality health services and best practices where and when they are needed. Our strong and growing pipeline reflects the urgency of this problem,” said CEO Sachin Aggarwal in a press release.

Dubreuil said Think’s Q1 was mostly in line with estimates, with the $21.8 million topline beating the consensus call at $21.0 million, while adjusted EBITDA at $1.1 million was similar to the Street at $1.2 million.

The analyst said we’ll likely see a revenue lift in the company’s software and data solutions business in the coming quarters due to the onboarding of a large digital front-door client. In its clinical research segment, revenue growth should come as typical over the back half of the year, and in clinical services, the Q2 is likely to offer a poor comparison with last year’s second quarter, which benefitted from Omicron-related business.

“2Q23 will be a tough comp for clinics, and clinical research revenue acceleration is more likely to materialize in the back half of the year. That said, next quarter will start reflecting the new, large digital front door contract. This, coupled with strong potential for the product, has resulted in our warming up to the name as it should draw attention to the company’s digital capabilities,” Dubreuil wrote.

“Our target price, based on 1.25x EV/2023 revenue, 14x EV/2024 EBITDA and our DCF, is unchanged at C$0.65,” he said.