THNK stock is still undervalued, Echelon says

The company’s second quarter is in bed and Echelon Capital analyst Robb Goff still thinks there is money to be made on Think Research Corp (Think Research Corp Stock Quote, Chart, News, Analysts, Financials TSXV:THNK).

On August 29, THNK reported its Q2, 2023 results. The company posted Adjusted EBITDA of $1.3-million on revenue of $22.5-million, a topline that was up 22 per cent over the same period last year.

“With record revenue and positive adjusted EBITDA [earnings before interest, taxes, depreciation and amortization], the second quarter continued the strong performance trend set in the last two quarters,” CEO Sachin Aggarwal said. “Strong 67-per-cent annual recurring revenue growth was driven by SaaS licensing in our software and data division, and reached $25-million at the end of the quarter. Think is in a great position to help constrained health care 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.”

Goff broke down the quarter.

“Think Research reported solid Q223 results with revenues/gross profit/EBITDA of $22.5M/$11.7M/$1.3M against our forecasted $22.1M/$11.5M/$1.1M and the consensus of $22.4M/$11.5M/$1.2M. The results reflected another set of record quarterly revenues for Think, with modest q/q growth of 3.1%, entirely driven by strength in the higher-margin Software and Data Solutions SaaS segment, which grew 9.9% q/q and was offset by weakness in both the Clinical Services and Clinical Research segments. Think saw its annual recurring revenues (ARR) increase to $25M from Q123’s $22M due to the Company’s five-year $40M Digital Front Door (DFD) contract kicking in during Q2 along with smaller SaaS contract conversions around other product offerings. Think’s Clinical Research segment (BioPharma) is experiencing some seasonal slowness that will likely persist into Q323 before ramping up to exit the year as clinical trial milestones mature. The Company’s Clinical Services segment has not had the rebound Think had previously prognosticated, as demand for bariatric surgeries remains depressed in 2023 due to the availability of less invasive competing solutions for the treatment of diabetes, such as GP-1 drugs, creating alternatives to surgery for obese patients.”

In a research update to clients August 30, Goff maintained his “Speculative Buy” rating on THNK, but trimmed his price target from $1.10 to $0.80. The new target implied a return of 158.1 per cent at the time of publication.

Goff thinks Think will post EBITDA of $6.0-million on revenue of $90.8-million in fiscal 2023. He expects those numbers will improve to EBITDA of $54.1-million on a topline of $102.2-million the following year.

“Think’s shares remain significantly discounted, trading at 0.7x/1.3x/10.4x EV to 2023 revenues/gross profit/EBITDA on our forecasted 2023 EBITDA margin of ~7%, compared to its Canadian Digital Health peers at medians of 1.9x/2.4x/8.3x on a forecasted EBITDA margin of 12% – the discount on EV/EBITDA becomes more apparent in 2024 with further EBITDA growth where Think trades at 6.8x our 2024 EBITDA forecast, which compares to Canadian peers at 10.7x. We note that the Canadian digital health environment trades at a significant discount to its US peers (Exhibit 3) that are trading at 1.8x/5.4x/23.7x EV to 2023 revenues/gross profit/EBITDA on just a 5% forecasted EBITDA margin, while the 2024 median EV/EBITDA multiple sits at 20.5x,” the analyst concluded.

About Think Research Corp (via company handout)

About Think Research Corporation

Think Research Corporation is an industry leader in delivering knowledge-based digital health software solutions. The Company’s focused mission is to organize the world’s health knowledge so everyone gets the best care. Its evidence-based healthcare technology solutions support the clinical decision-making process and standardization of care to facilitate better health care outcomes. The Company gathers, develops, and delivers knowledge-based solutions globally to customers including enterprise clients, hospitals, health regions, healthcare professionals, and / or governments. The Company has gathered a significant amount of data by building its repository of knowledge through its network and group of companies.

Think licenses its solutions to over 14,200 facilities for over 320,000 primary care, acute care, and long-term care doctors, nurses and pharmacists that rely on the content and data provided by Think to support their practices. Millions of patients and residents annually receive better care due to the essential data that Think produces, manages and delivers.

In addition, the Company collects and manages pharmaceutical and clinical trial data via its BioPharma Services subsidiary. BioPharma Services is a leading provider of bioequivalence and Phase 1 clinical research services to pharmaceutical companies globally. Think’s other services include a network of digital-first primary care clinics and medical clinics that provide elective surgery.