Shares of health technology company VitalHub Corp. (VHI-X) hit an all-time high on Monday amid rising demand for its software used by health professionals worldwide, particularly during the pandemic.
On Monday, the Toronto-based health technology company reported “significant market penetration” for its recently acquired UK company S12 Solutions, which it said signed a handful of contracts in recent months.
The stock is also benefiting from strong first-quarter results reported late last week, including revenue of $5.3-million, up 92 per cent year-over-year, which was slightly ahead of analyst expectations. The growth was driven by recent acquisitions and recurring revenue. Its net loss was $241,671 versus a loss of $564,458 a year earlier.
VitalHub’s stock reached a high of $3.77 in Monday trading on the TSX Venture Exchange and closed up 8 per cent to $3.60. The shares have risen by more than 25 per cent over the past month and about 140 per cent over the last year.
The company’s technology, which includes electronic health records and software to help organize and manage patient care, is used by hospitals, health authorities, long-term care home and social services organizations in Canada, the U.S., the UK, Australia, Qatar and Latvia.
Cormark Securities analyst Gavin Fairweather, who has a “buy” on the stock and increased his target price to $5.25 from $5 on Monday, said the company has been growing both through acquisitions and from existing revenues. The company has also been increasing profits, a trend he expects to continue.
“As the company has grown organically and completed M&A [mergers and acquisitions], EBITDA [earnings before interest, taxes, depreciation and amortization] margins have increased to 16 per cent in [the first quarter] and we expect them to rise to 20 per cent in the coming quarters and 25 to 30 per cent longer term,” he said.
In a note, Mr. Fairweather said the company is seeking to achieve ‘Rule of 40’ status — a metric used to measure the performance of software-as-a service companies that says its growth rate and profit margin should add up to 40 per cent or more — through 20 per cent EBITDA margins and 20 per cent organic growth.
“With the stock trading at 3.6 times 2022 sales versus peers at 7.2 times, we expect a material rerating on continued execution,” he wrote.
Paradigm Captial analyst Daniel Rosenberg has a “buy” on the stock and increased his target to $4.25 from $4.15, calling it a “compelling investment opportunity in a very attractive space.”
In a note published on Monday, Mr. Rosenberg said the digitization of health care is a big theme in the sector and VitalHub’s focus on using software to exchange and make use of information tackles “one of the major pain points of health care systems” around the world.
“VHI’s proven solutions to enhance visibility, connectivity and optimize patient flow have only just started to make inroads in the markets it serves,” he wrote. VHI is the company’s ticker symbol.
“We believe the company’s strategy of focusing on community health and regional care providers is the right one. It is the path of least resistance toward affecting change in an industry that is traditionally very slow-moving and difficult to penetrate. It also avoids much of the largest competition.”
Mr. Rosenberg also said the company’s “very robust balance sheet” puts it in a good position to continue making acquisitions.
“We believe VHI’s traction in a leading sector, attractive financial profile and valuation discount make the company a very compelling investment opportunity,” he wrote.
Canaccord Genuity analyst Doug Taylor increased his target to $4.25 from $4 and kept his “buy” recommendation after the earnings report.
“While still at [a] relatively small scale, we believe VitalHub offers investors a combination of organic growth, profitability, and a well-defined, prudently managed M&A program,” he wrote in a May 28 note, adding: “We see upside to our forecasts based on the company continuing to execute organically or deploying additional capital on M&A.”
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