Should Investors Consider CRH Medical Corp?

Now trading under $10 for the first time since March 9th, shares of CRH Medical Corp (TSX:CRH) sold off from Thursday’s close of $12.14 to close the week at $9.90 on Friday.

Although there were no major press releases or announcements, shares still tumbled. While this is never a good sign, investors need not overreact. While the focus of the majority of articles on Motley Fool are about dividend-paying value stocks, investors still need to look at the pipeline of value stocks “to-be.”

Although it is highly likely that today’s growth stock will mature and become a value stock, it does not mean we jump at any price. With a current market capitalization close to $715 million, shareholders may only be at the beginning of a major breakout.

The company is involved in the servicing of physicians in the realm of gastrointestinal diseases, in addition to providing anesthesiology services to doctors in the United States. Operating in the growing medical field, the company is more than a feel-good story. Looking at the income statement, the company has delivered positive earnings over the 2016 fiscal year which ended on December 31st. The earnings per share (EPS) were $0.14 during the year. EPS were $0.06 in 2015, $0.03 in 2014, and $0.05 in 2013.

While earnings have been relatively minuscule, the good news is management has not focused on growth at all costs. While revenues have increased from $7.68 million in 2013 to $78.35 million in 2016, the profit and cash flows have given investors no reason to worry.

Cash flow from operations (CFO) has been positive for the past four years. While it was barely positive in 2013 and 2014, the number jumped to $17.96 million in 2015 and improved further to $32.92 Million in 2016. Clearly the company has the ability to generate positive cash flow.

While waiting for the growth story to play out, investors have very little to worry about. Currently, the company has assets totaling $163 million and liabilities of $103 million. Long term debt makes up no more than $40 million as of December 31st, 2016. To put the short term concerns to rest, current assets total $21.75 million with current liabilities reaching $12.09 million. Cash on the balance sheet totals $9.5 million.

Getting back to the bad news of the market selloff this past Friday, shares are still on a healthy bull run. Evaluating the technical indicators prior to the selloff, the share price traded above the 10-day, 50-day, and 200-day simple moving averages (SMAs) on Thursday. After the selloff however, the share price crossed below the 10-day SMA and slightly below the 50-day SMA.

It would seem the run was a little too much for a company still trying to reach a grown-up size. With a compounded annual growth rate (CAGR) in revenues of 116% from 2013 to 2016, shareholders may still have to be patient for this company to reach full potential and possibly even longer to be considered a value investment.