Aug 11, 2021
[4 min Read]
Investors are always on the lookout for opportunities that allow them to derive market-beating gains. Historically, small-cap growth stocks such as CloudMD (DOC.V) have had the potential to increase your wealth at an exponential rate over the long term. However, these investments also carry significant risks especially if the market turns turbulent or enters bear market territory.
Keeping these factors in mind, let's deep-dive and analyze Cloud MD to see if this Canadian growth stock should be part of your portfolio.
CloudMD Software and Services aims to digitize the delivery of healthcare and provide patients access to solutions via a smartphone, tablet, or laptop. The company is focused on integrating the healthcare ecosystem digitally which should improve patient engagement rates over time.
It offers SaaS (software-as-a-service) based health tech solutions to medical clinics in North America. Its portfolio of solutions helps to deliver quality healthcare and CloudMD now has a combined ecosystem spanning 500 clinics, eight million patient charts, and 4,000 licensed practitioners.
CloudMD has developed a suite of telemedicine software solutions that cater to individuals as well as enterprises. For example, a patient can easily store, manage and share health-related information and have capabilities to access charts, lab results, reorder prescriptions as well as share health monitoring data with doctors remotely.
It derives sales from digital services, hybrid primary care clinics, pharmacy networks, and enterprise health solutions.
In the first quarter of 2021, CloudMD reported sales of $8.77 million, up from just $3.05 million in the prior year period. While sales were up 188% year over year in Q1, the company's gross profit surged by 220% to $3.56 million. The company attributed its improvement in gross margins to higher-margin sales from its Enterprise Health Solutions or EHS vertical.
However, CloudMD's operating expenses more than tripled to $9.13 million which meant it reported an operating loss of $5.54 million in the quarter ended in March 2021.
In Q1 of 2021, CloudMD closed five acquisitions including a 51% stake in West Mississauga Medical Clinic which helped it increase its hybrid clinic footprint in Ontario.
In March 2021, CloudMD provided an update to investors and said it continues to rapidly expand its Enterprise Health Solutions revenue as it realized $5 million in new multi-year contracts since the start of 2021.
CloudMD is valued at a market cap of $423 million and has returned 158% to investors since it went public in June 2020. However, DOC stock also trading 40% below its record high allowing investors to buy the dip.
CloudMD remains a solid long-term buy given its part of a rapidly expanding addressable market. According to a report from Fortune Business Insights, the telehealth market is projected to touch $559.5 billion by 2027, up from $61.4 billion in 2019, indicating a compound annual growth rate of over 25%.
CloudMD plans to take advantage of this growth by aggressively increasing its patient base through acquisitions as well as organically in the next 12-months. It remains focused on disrupting the healthcare industry by leveraging its tech expertise to digitize its delivery and achieve better health outcomes.
The digital health company confirmed it remains on track to launch a completely automated and connected platform by the end of 2021 which will address all points of patient care in a single place. Its integration of solutions should allow the company to experience organic growth across business segments.
CloudMD's current revenue run rate is more than $120 million. This figure can move higher if we account for organic growth and cross-selling strategies. The five acquisitions closed in Q1 will add around $13 million in annual revenues.
CloudMD's CEO Dr. Essam Hamza explains, “We identified key acquisition targets that were synergistic to our overall vision and we remain focused on building a complete healthcare ecosystem, providing connected, holistic care. We continue to integrate all of our capabilities into one comprehensive platform, which is the foundation for scale and expansion.”
CloudMD ended Q1 with a cash balance of $99 million and $8.5 million in debt. In order to conserve cash and equity, it is seeking additional debt financing options. However, CloudMD would have to improve profit margins which will enable it to meet interest obligations going forward.
Analysts tracking the company expect CloudMD sales to increase sales by 540% year over year to $96.1 million in 2021 and by 62.3% to $156 million in 2022. This will allow CloudMD to improve its bottom-line from an adjusted loss of $0.11 in 2020 to earnings per share of $0.01. This suggests DOC stock is trading at an extremely attractive forward price to 2022 sales multiple of 2.7x, given its growth forecasts.
CloudMD has claimed it will report a positive adjusted EBITDA in the second half of 2021 and it remains well poised to increase shareholder value by executing its growth strategy through accretive acquisition and integration of healthcare solutions.