CRH Medical is updated and rates Speculative Buy at U.S. $2.71 or CAN $3.59.
This Canadian company started with a patented hemorrhoid banding product (of all things) that it was successfully selling to many of the Gastrointestinal physicians (GIs) in the U.S. It then decided to get into the business of providing anesthetic services to these Gastrointesinal physicians. It got into that business by selling shares and making a large transformational acquisition in 2014. Its strategy then became to be a growth-by-acquisition company by acquiring existing anesthetic service businesses from physicians. Often, it acquires 51% of the practice so that the physicians can both receive cash and retain substantial ownership. The growth strategy has worked well except that as announced in 2017 and implemented on January 1, 2018 there was a government-mandated reduction to the fees it can charge. This resulted in significant headwinds and uncertainty in 2018. But revenue per share and adjusted earnings per share continued to increase despite the headwind in 2018. And the impact of the lower prices has now been “lapped” which should pave the way for noticeable growth in 2019. The company indicates that it currently has no competitors in this business of aggregating the anesthetic practices of GI clinics. It is a high margin business and CRH benefits from its scale.
The share price has been volatile and, in retrospect, it overshot the mark in 2016 and then basically crashed in 2017 due to having been probably over-valued and due to the announced fee reductions. Despite having been quite successful in dealing with the 2018 headwinds, the stock price is currently at about the same level as it was in early 2018 and is down substantially from the 52 week high reached last September. This is a small company and should be considered somewhat speculative and is not suitable to be large percentage of a portfolio. But given its growth plans and current price is may have good upside.
I increased my position in this company by one third today but it remains only 1.3% of my portfolio.