Think Research is still a pass, says Desjardins

Desjardins Capital Markets analyst Jerome Dubreuil is thinking a little harder about Think Research Corp (Think Research Stock Quote, Charts, News, Analysts, Financials TSXV:THNK) after seeing the company’s latest quarterly results. Dubreuil reiterated a “Hold” rating on the stock in a Tuesday update but said the story is looking better for the health tech name.

THNK shares bounced back on Tuesday after a down day on Monday. The stock was up by 14 per cent and is now up almost 18 per cent for the year-to-date. 

Think reported its fourth quarter 2022 and full year results on Monday, featuring revenue up 45 per cent year-over-year to $17.8 million and adjusted EBITDA at positive $1.6 million compared to negative $189,000 a year earlier. Dubreuil had been estimating $16.3 million in revenue and $1.6 million in EBITDA.

Dubreuil said there were no big surprises in the Q4, attributing the revenue beat to strong performance from Think’s Clinical Research and Software and Data Solutions segments. Think’s Clinical Services revenue declined in the quarter due to seasonality and staffing issues, which appear to have been resolved, the analyst noted.

“Management did not provide 2023 guidance, but we believe THNK could deliver mid- teens organic growth in 2023,” Dubreuil wrote.

Turning to Think’s balance sheet, Dubreuil said it’s improved through among other things the recent extension of its bank loan, but there’s still a ways to go.

“The balance sheet remains tight, especially given expected volatility in profitability, but we no longer foresee material covenant concerns in the near term,” he said.

Dubreuil revised his estimates and is now forecasting revenue of $91.2 million for 2023 and $102 million for 2024. On adjusted EBITDA, the call is for $7.3 million for 2023 and $10.9 million for 2024.

With the update, Dubreuil moved his target price on THNK from $0.70 to $0.65 per share, representing at press time a projected one-year return of 86 per cent.

“Monday’s negative share price reaction does not reflect our view of the quarter, which we see as broadly in line with expectations,” Dubreuil said.

“We maintain our Hold rating due to recent dilution and as we want to see more stable results before recommending the stock. However, we note that the improvement in the financing situation, the decent quarter and recent momentum in data connectivity make us more constructive on the name,” he said.