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On today’s Breakouts report, there are six stocks on the positive breakouts list (stocks with positive price momentum), and 51 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appeared on the positive breakouts list last week – Profound Medical Corp. (PRN-T).

Year-to-date, this small-cap health care stock has rallied 55 per cent. The stock has a unanimous buy recommendation with an average one-year target price implying a potential gain of 37 per cent over the next 12 months.

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This is a stock best suited for consideration by longer-term investors. The company is in the infancy stage of its commercialization strategy and is not yet profitable. Successful execution by management on its commercialization strategy will be a key driver for the stock price.

A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Ontario-based Profound is a medical device company.

On the second quarter earnings call, Chief executive officer Arun Menawat summarized management’s three near-term core objectives, “One, additional TULSA-PRO site agreements; two, expanding TULSA adoption, both in terms of procedure volumes and types of patients treated; and three, enhancing our website, marketing and education programs to provide even more comprehensive resources for patients and physicians.” radiation-free.

On the second quarter earnings call, the chef Executive Officer Arun Menawat summarized management’s three near-term core objectives, “One, additional TULSA-PRO site agreements; two, expanding TULSA adoption, both in terms of procedure volumes and types of patients treated; and three, enhancing our website, marketing and education programs to provide even more comprehensive resources for patients and physicians.”

On July 21, the company completed a US$46-million financing, issuing over 3.1-million shares at a price per share of US$14.50. As of July 31, the company had approximately $112-million of cash on its balance sheet.

According to Bloomberg, the Business Development Bank of Canada owns approximately 7 per cent of the shares outstanding.

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The stock is dual-listed. It trades on the Toronto Stock Exchange under the ticker PRN, and on the Nasdaq with the ticker PROF.

Investment thesis

Investors are focused on revenue growth and future earnings and profitability. Management’s execution on the following growth pillars are key drivers for the stock price.

1) Installations. Securing agreements with additional imaging centers and teaching hospitals. Currently, the TULSA-PRO system is only available at a handful of locations.

In January, Profound entered into an agreement with RadNet Inc. (RDNT-Q) to install TULSA-PRO systems at three locations in California. RadNet has over 330 imaging centers in seven U.S. States. There is the potential to expand this agreement to other locations.

Other locations using the TULSA-PRO system include the Mayo Clinic in Florida, UT Southwestern Medical Center in Texas, Busch Center in Georgia, Scionti Prostate Center in Florida, and the WellSpan Advanced Prostate Care Center in Pennsylvania.

2) Procedure growth. The company recently adopted a pay-per-procedure model in the U.S., charging approximately US$7,700 per procedure. As more procedures are completed, more revenue will be generated for the company.

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3) Medical coverage. Currently, there is no significant reimbursement available from private insurers and government-run health plans. Reimbursement coverage is an important milestone for the company to achieve in order to make this medical treatment more affordable to individuals and thereby broaden its adoption.

Management has an intermediate and longer-term reimbursement strategy. In 2021, management believes it may have a C-code, and by the end of 2021, the company may be able to apply for a CPT (Current Procedural Terminology) code, which then takes about 18-months to be issued by the AMA (American Medical Association).

4) Expansion to other therapies. Management believes its technology can also be used to treat BPH, benign prostatic hyperplasia, a common medical condition in elderly men characterized by an enlarged, noncancerous prostate.

Quarterly earnings

Given that the company is still in the early stage of commercializing its products, mainly its TULSA-PRO system, investors are not as focused on quarterly earnings results. For now, the key focus is the progression of its commercialization strategy.

On Aug. 6, the company reported its second-quarter financial results. Revenue was $1.42-million, up 148 per cent from $574,109 reported during the same period last year. The gross profit margin was 41 per cent. Research and development costs totaled $2.38-million. General and administrative expenses amounted to $2.28-million, and selling and distribution costs were $1.38-million. The company reported a net loss of $7.3-million or a loss per share of 46 cents.

The company will be releasing its third-quarter financial results after the markets close on Thursday Nov. 5.

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Dividend policy

The company does not pay its shareholders a dividend.

Analysts' recommendations

This health care stock with a market capitalization of $444-million is actively covered by seven analysts, and all seven analysts have buy recommendations.

The firms providing recent analyst coverage on the company are: Alliance Global Partners, Canaccord Genuity, Cowen, Jefferies, Lake Street Capital Markets, Paradigm Capital, and Raymond James.

Revised recommendations

In August, four analysts have revised their target prices higher.

  • Cowen’s Joshua Jennings to US$18 from US$15.
  • Paradigm Capital’s Corey Hammill to $33.20 (Canadian) from $30.50.
  • Canaccord Genuity’s Cecilia Furlong to $24 (Canadian) from $21.
  • Alliance Global Partners' Ben Haynor by US$3 to US$18.

Financial forecasts

According to Refinitiv, the consensus revenue estimates are $8.5-million in 2020, $28-million in 2021, and $52-million in 2022. Gross profit margin is anticipated to come in at 52 per cent in 2020, 63 per cent in 2021, and 65 per cent in 2022. The Street is forecasting an earnings loss per share of $1.33 in 2020, an earnings loss per share of 76 cents in 2021, and an earnings loss of 2 cents per share in 2022.

Valuation

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The stock can be valued using a variety of methodologies including using a DCF (discounted cash flow) model, applying an enterprise value-to-sales multiple, enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiple, or price-to-earnings multiple based on 2023 earnings.

The average one-year target price is $31.18, implying the share price has 36.5-per-cent upside potential over the next 12 months. Individual target prices are as follows in numerical order: two at US$18, $24 (Canadian), US$22, $33.20 (Canadian), US$31, and $43 (Canadian).

Insider transaction activities

Year-to-date, only two insiders have reported trading activity in the public market. These trades were relatively small and occurred on Jan. 27.

Chief executive officer and chairman Arun Menawat bought 3,300 shares at a price per share of US$11.65.

Chief financial officer and senior vice-president of corporate development Aaron Davidson also purchased 3,300 shares at a cost per share of US$11.65.

Chart watch

Year-to-date, the share price has rallied 55 per cent. The share price has been in an uptrend since mid-2019.

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In terms of key resistance and support levels, the share price has a major ceiling of resistance between $25 and $26, near its record closing high of $26.10 reached on February 7, 2020. Looking at the downside, there is technical support around $20, close to its 200-day moving average (at $19.19).

This small-cap stock has reasonable liquidity. The three-month historical daily average trading volume is approximately 77,000 shares.

Tuesday's breakout stocks

POSITIVE BREAKOUTSOct. 26 close
AYA-TAya Gold & Silver Inc. $3.22
CS-TCapstone Mining Corp $1.72
EFN-TElement Fleet Management Corp. $13.36
MIC-TGenworth MI Canada Inc $44.18
RICH-CNRaffles Financial Group Limited $7.85
STLC-TStelco Holdings Inc. $14.25
NEGATIVE BREAKOUTS
ADN-TAcadian Timber Corp $15.49
AOI-TAfrica Oil Corp $0.92
AP-UN-TAllied Properties REIT $33.43
APS-TAptose Biosciences Inc $6.30
CWX-TCanWel Building Materials Group Ltd. $6.35
CLS-TCelestica Inc $8.60
CVE-TCenovus Energy Inc $4.47
CG-TCenterra Gold Inc $12.35
GIB-A-TCGI Group Inc $85.25
CIX-TCI Financial Corp $16.62
CCA-TCogeco Communications Inc $95.44
KOR-TCorvus Gold Inc. $2.96
DML-TDenison Mines Corp $0.42
D-UN-TDream Office REIT $18.10
ENB-TEnbridge Inc $37.62
EFR-TEnergy Fuels Inc $2.04
ENGH-TEnghouse Systems Ltd $68.22
EPI-TESSA Pharma Inc. $8.10
FFH-TFairfax Financial Holdings Ltd $364.84
FVL-TFreegold Ventures Limited $0.86
GEI-TGibson Energy Inc $21.14
GSV-TGold Standard Ventures Corp. $0.88
GRT-UN-TGranite Real Estate Investment Trust $74.28
IMV-TIMV Inc. $4.14
IPL-TInter Pipeline Ltd $12.42
IPCO-TInternational Petroleum Corp. of Sweden $2.12
IIP-UN-TInterRent REIT $11.80
KEY-TKeyera Corp $19.61
KMP-UN-TKillam Apartment REIT $16.82
KL-TKirkland Lake Gold Inc $60.52
LIF-TLabrador Iron Ore Royalty Corp $24.95
LGD-TLiberty Gold Corp. $1.86
MEG-TMEG Energy Corp $2.34
MI-UN-TMinto Apartment REIT $16.88
MSI-TMorneau Shepell Inc $27.73
NEPT-TNeptune Wellness Solutions Inc. $2.41
NUAG-TNew Pacific Metals Corp. $5.39
OTEX-TOpen Text Corp $52.26
PXT-TParex Resources Inc $13.06
PTM-TPlatinum Group Metals Ltd $2.62
QBR-B-TQuebecor Inc $32.08
SSL-TSandstorm Gold Ltd $10.62
SJR-B-TShaw Communications Inc $22.85
SYZ-XSylogist Ltd. $10.19
TRP-TTC Energy Corp. $54.74
TEV-TTervita Corp. $1.83
TH-TTheratechnologies Inc $2.63
TOT-TTotal Energy Services Inc $2.05
WM-TWallbridge Mining Company Limited $0.83
WTE-TWestshore Terminals Investment Corp $13.43
WPK-TWinpak Ltd. $42.50

Source: Bloomberg

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

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