CRH Medical (Toronto: CRH) is very much a niche business; it provides anesthesia services for patients undergoing colonoscopies, explains Shawn Allen, contributing editor to Internet Wealth Builder.
It currently services 47 walk-in clinics in eleven U.S. states through its team of over 400 registered nurse anesthesiologists. All of its revenues and the great majority of its costs occur in the U.S.
For the past five years the company has been pursuing an aggressive growth-by-acquisition business model. It acquires established colonoscopy anesthesia practices.
The company continues to grow by acquiring additional anesthesia service providers. It sometimes purchases a 100% interest but more often purchases a 51% interest. Six relatively small acquisitions were also completed in 2019.
In the most recent two quarters, adjusted earnings per share rose 38% and 54% while revenues per share rose 9% and 12%. This company does not pay a dividend as it retains all earnings to help fund its growth-by-acquisition strategy. The company has bought back 3.5% of its shares in the past two years and the buy-back program is continuing.
At my analysis price of US$4.03 (C$5.31), the price to book value ratio, in isolation, is not attractive at 3.9 and the tangible book value per share is negative. However, based on trailing earnings adjusted to add back the amortization of intangibles, the p/e ratio is attractive at 9.0.
The company appears set to continue growing its earnings per share over time through acquisitions. This has been a volatile stock. But its recent performance was good, rising 8% in Toronto in 2019 and a further 14% in this new year to date. We rate the stock a buy, but caution that it is a more speculative idea.
