Is Ontrak stock a buy?

Following the company’s fourth quarter results, Roth MKM analyst Jonathan Aschoff has maintained his “Buy” rating on Ontrak (Ontrak Stock Quote, Chart, News, Analysts, Financials NASDAQ:OTRK).

On April 16, Ontrak reported its Q4 and fiscal 2023 results, In the fourth quarter, the company posted an Operating Loss of $5.2-million on revenue of $3.5-million, a topline that was 41% over the same period a year prior.

“In addition to new business development efforts, we focused this quarter on continued innovation with a technology focus,” CEO Brandon LaVerne said. “We introduced our Advanced Engagement System to offer increased efficiencies and higher ROI, while maintaining a patient-centered focus amidst a challenging macro environment facing our health plan partners. Our WholeHealth+ program is incredibly important and aligned to help solve for these macro issues by delivering proven health outcomes and reducing costs while also increasing engagement, leading to increased quality scores. We are confident in our value-proposition to health plan partners, and are seeing continued demand in our recent customer expansions and further progress in our pipeline as a result.”

The analyst summarized where the company is at right now.

“OTRK has pro forma current cash of $10.1M, which includes post YE23 warrant exercise, debt raise, and estimated 1Q23 cash burn,” he noted. “4Q23 revenue was $3.5M, down 5% QoQ, and 1Q24 revenue guidance was a range of $2.5M-$2.9M, given the (previously announced) 1Q24 loss of a client that accounted for 34% of 2023 revenue. We expect QoQ revenue growth going forward, given the increasing effective outreach pool (currently at 5,094) and the fact that large new Florida client Community Care Plan received a substantial Medicaid award.”

In a research update to clients April 17, Aschoff maintained his “Buy” rating and price target of $4.00 on OTRK.

The analyst thinks the company will post an EPS loss of $0.35 on revenue of $16.0-million in fiscal 2024. He expects those numbers will improve to an EPS loss of $0.30 on a topline of $30.8-million the following year.

“Our 12-month price target of $4 is based on a DCF analysis using a 10% discount rate that is applied to all cash flows and the terminal value, which is based on a 5x multiple of our projected 2031 operating income of $121 million. We arrive at this valuation by projecting future U.S. revenue from Ontrak’s commercial stage platform. Factors which could impede the achievement of our target price include, but are not limited to: (1) failure to add new customers, (2) loss of existing customers, (3) and smaller than projected commercial opportunity due to changes in market size, competitive landscape, and product pricing pressures,” the analyst added.