DOC stock is heading back to $0.40, says Echelon

Echelon Capital Markets analyst Rob Goff likes the continued efforts by CloudMD Software & Services (CloudMD Software & Services Stock Quote, Charts, News, Analysts, Financials TSXV:DOC) to streamline its business. Goff delivered an update to clients on DOC on Wednesday and reiterated a “Speculative Buy” rating on the stock, saying CloudMD’s pipeline holds potential for outperformance going forward.

Vancouver-based CloudMD, a digital healthcare company with SaaS-based solutions for clients in fields such as medical clinics, enterprise clients, employee and student assistance programs, announced on Tuesday that it had sold its non-core, US-based electronic medical records (EMR), Practice Management (PM) and Revenue Cycle Management (RCM) assets for US$6.3 million to N. Harris Computer Corp.

“We continue to successfully execute our strategy of focusing on our higher growth and margin businesses while surfacing value from non-core assets in our portfolio,” said CloudMD CEO Karen Adams in a statement.

By Goff’s estimate, the assets were collectively generating revenue of 6-7 per cent of DOC’s first quarter 2023 total, representing about a $6.8 million annual run rate and implying a 1.2x EV/Revenue multiple. That amounts to a considerable premium to CloudMD’s current 0.4x EV/Revenue multiple, he said, with the upfront valuation gain representing about $0.02 per share.

Goff said the sale is notable since it generated additional cash while shedding what was negligible EBITDA such that DOC’s push for EBITDA-positive territory (Goff has it forecasted for the fourth quarter of the present year) won’t be affected.

“We applaud the Company’s efforts in continuing to streamline the business toward its core assets,” Goff wrote. “We remain bullish toward a more focused and efficient CloudMD emerging as it realizes quarterly revenues pushing toward $30 million on our baseline forecasts along with EBITDA-positive results by year-end, while 2024 points to a free cash flow-positive turn.” 

CloudMD shares have gone through a dramatic up-and-down over the past three years, moving from about $0.50 in early 2020 to briefly as high as $3.00 by later that year, only to fall back to now under $0.20 over the past few months.

Goff sees upside from current levels and has maintained a 12-month target of $0.40, which at press time represented a projected return of 167 per cent.

“We look for sustained double-digit baseline organic growth, while the Company’s considerable pipeline (communicated at over $55 million in annual recurring revenues (ARR)) could lead to increased scale and significant outperformance of our forecasts with H223 execution,” Goff wrote.

“In particular, we believe there exists significant interest and opportunities for CloudMD’s remote patient monitoring offering within the US where healthcare spend isn’t constrained by public spending,” he said.

Goff has estimated DOC’s revenue as going from $135.0 million in 2022 to $104.9 million in 2023 and to $119.0 million in 2024, while its adjusted EBITDA is projected to go from negative $10.4 million in 2022 to negative $3.2 million in 2023 and to positive $2.2 million in 2024.