Date : August 6, 2020
The pharmaceutical services space is now ground zero, and likely will for some time. Furthermore, many of the stocks in the space may be sorely undervalued given three key themes:
- Their absolute necessity as essential services no matter how things may worsen from here
- Their proximity to the center of the issue in the role of key testing providers as we continue to battle the virus
- And their role as frontline resources for the emerging force of telehealth, telecare, and telemedicine, which is part of an evolutionary transition forced into play – but nonetheless inevitable – by the pandemic
RXMD is an excellent example on every one of these fronts.
But we would also note that RXMD is likely even more undervalued by the market because it is now trading at “even money” relative to the pharmacy space in terms of traditional valuation metrics (about 0.4x forward sales) that tends to define other pharmacy plays, despite the company’s far stronger pace of growth on both the top and bottom line.
This has been hammered home by the company’s recent 4 quarters and 12 months of operations, where it has often demonstrated y/y growth of 70%, 90%, and even 110% growth on the topline.
Generally speaking, valuation on a price-to-sales basis is tethered to a company’s rate of growth. It’s the same reason why we see the cloud and SaaS plays trading at 10x or 20x forward sales: because the market is extrapolating that growth forward.
One reason we may be seeing this is because RXMD is an OTC stock. It’s probably the only stock in the space with a viable business trading on the OTC.
This is no fly-by-night penny stock. RXMD booked over $30 million in sales in 2019. And the company is heading for a significant beat of that performance in 2020.
In addition – and this may be the main idea – RXMD is in the process of applying to uplist to a major listed exchange – either the Nasdaq or NYSE. Given the company’s strong growth trends and industry leading valuations on a growth basis, a move to solidify its place in the pecking order on a major exchange could unleash that value.
Another key piece of the puzzle is RXMD’s context of business. The company operates mostly in the Florida geographic market, which is notoriously beset by the virus crisis, now ranking at the top of the chart in the US in terms of per capita cases.
In other words, if pharmacy services stocks are relatively advantaged by the virus, then the one stock in the space that is principally centered in the region now being most affected should be relatively more advantaged, especially given the company’s recent move to aggressively expand its overall footprint, including its reach as a primary force in delivering COVID-19 antibody testing solutions across four major Florida counties – centered on the monster markets of Miami, Fort Lauderdale, and Orlando.
Note, Florida is not just the top covid case state in per capita numbers, it is also the third most populous state in the country – after California and Texas.
The Orlando Expansion
In the company’s most recent release, RXMD announced the expansion of the Company’s PharmCo branded pharmacy operations and presence in the Orlando metropolitan area. The Company is moving out of its current Orlando pharmacy location, which is a 700 square-foot mini-pharmacy operating under the “Five Star” brand designation, to a 3,700 square-foot full-size pharmacy that will open under the PharmCo brand designation. The Company also noted that this move, which represents an expansion in property size of more than 400%, will not increase monthly lease costs.
According to the release, once completed, the move will allow for a dramatic expansion in the services and products offered in the Orlando market, including the full scope of PharmCo pharmacy goods and services, as well as therapy management, patient management, cost management services, and rapid-results testing services (COVID-19 IgG/IgM) as authorized by the FDA under its Emergency Use Authorization (“EUA”) guidelines for conducting SARS-CoV-2 antibody presence and COVID-19 infection diagnosis testing… The inclusion of future testing at this new location represents the Company’s continued expansion in that service area. As noted in its release dated July 14, Progressive Care expanded its antibody testing regional footprint to include Palm Beach County earlier this week. Today’s announcement indicates further expansion of that coverage zone, which now also includes Orange County. The Company’s antibody testing service has been met with extremely strong demand at its Dade location, depleting testing kit inventories through sales to health providers and on-site test administrations. In response to both this surge in demand and the expansion in regional coverage, the Company has ordered a large new supply of antibody testing kits for sale and administration across South Florida with Orange County coming on shortly.
“This move will create access to a wider base of customers, patients, and providers, and will provide much-needed room to grow for years to come,” remarked S. Parikh Mars, CEO of Progressive Care. “Both the small size and limited location surroundings of our Five Star location have been constraining our ability to grow in the dynamic Orlando market. In addition, the shift in brand designation to our widely recognized PharmCo brand will drive expanded market share potential and allow us to tap the huge potential we see in this market.”
In other words, this is a major move and it doesn’t cost the company anything at all in terms of variable costs over time. It’s all gravy.