Investors: Forget Valeant Pharmaceuticals Intl Inc.: Check Out CRH Medical Corp. Instead

Invest in CRH Medical Corp. (TSX:CRH) for exposure to a growing and profitable healthcare company.

Karen Thomas, MSc, CFA

Author Bio

Karen Thomas began her investment career in 1998 and spent more than a decade working as an equity analyst and portfolio manager at investment management firms, including a major mutual fund company and a major pension plan. After gaining extensive experience in the investment industry, she decided that individual investors deserved access to the same knowledge and insights to help them take greater control of their financial futures. After the birth of her second daughter, Karen left her investment management career to write for The Motley Fool, where she has been helping investors make sense of stocks and the stock market for more than 10 years. Her work focuses on identifying undervalued opportunities and helping investors take a long-term approach to building wealth. Outside of investing, Karen enjoys spending time with her family and staying active outdoors.

Education

Master of Science (MSc) in Finance
Bachelor of Commerce, major in Finance and minor in International Business
Chartered Financial Analyst (CFA) designation, earned in 2000

Areas of Expertise

Energy stocks, long-term investing, value investing, and contrarian investing.

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Favorite Investment Quote

"Be fearful when others are greedy, and greedy when others are fearful." — Warren Buffett

Published March 22, 2017 8:00 am EDT

Last week, Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX) got hit yet again, as billionaire investor William Ackman from Pershing Square sold his 18.1 million shares, racking up a loss of $3 billion and sending the stock falling to new lows as hope continues to fade for the company.

Dangerously high debt levels, declining revenues, and pricing pressure are a lot to deal with, and this is clearly evident with Valeant, as we have seen the stock fall from highs of over $330 per share to under $15 today. The risk/reward relationship is not a good one; there’s too much risk.

The healthcare industry has one big thing going for it: an aging population. So, where do investors go for exposure to this industry? One place to look is CRH Medical Corp. (TSX: CRH), which is a healthcare products and services company that focuses on the treatment of gastrointestinal diseases.

Here are three reasons to own CRH Medical.

Strong revenue growth

A couple of years ago, CRH Medical entered the anesthesia management market with the acquisition of Gastroenterology Anesthesia Associates. In 2016, the company saw a 70% revenue growth rate, fueled by acquisitions as it continued its strategy to get into this new business and have organic growth.

Acquisition opportunities

As the anesthesia market is a fragmented one, there remain plenty of opportunities for expansion. Three acquisitions in the anesthesia business were completed in 2016, and in March 2017, the company acquired another Florida anesthesia practice, which has estimated annual revenue of US$2.2 million and will be immediately accretive to EBITDA and cash flow. Furthermore, the company announced that it will be pursuing a new opportunity to assist gastroenterology practices to transition to monitored anesthesia care.

The company is maintaining a strong balance sheet, as these acquisitions have been largely funded by its strong cash flow. For example, in 2016, the company generated $33 million in cash flow, of which it used $30 million for its acquisitions.

Strong margins and returns

The company’s margins have been strengthening nicely over the last years, and the company has been posting strong returns. In 2016, the company’s operating margin was a strong 31.6%, it generated an ROE of 19.5% and a return on investment of 15.9%

While the stock is not cheap, it has a lot of attractive qualities that make it a good buy for investors looking for exposure to the healthcare sector.