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NeuPath Health Inc (NPTH.V): Where a little attention could go a long way

10/19/2020

“In Canada, it’s not fundamentals, but sentiment that moves markets”…boy, if I had a nickel for everytime I heard that, I would have invested in Well Health Technologies (WELL.T) (nothing against $WELL!), and I would have been a couple of thousand dollars richer.

If only there was a way to prove that. Allow me:

It is a truth universally acknowledged that retail investors play a significant role in the Canadian markets. However, it would be a baldfaced lie to provide evidence that appoints sentiment as the only cause that sways the markets one way or another. That said, there’s plenty of evidence to say that it’s at least a significant factor.

(thank god, because otherwise us and our competitors would be out of a job, y’know? If you all didn’t care, there’s no reason for any of us to try to explain anything)

Mining vs Biotech

Companies within different industries are measured via different criteria and stats. If we haven’t hammered that into your heads by this time, this industry may not be for you.

Oftentimes, the retail investor is able to make sound investment decisions by conducting their due diligence on their stock pick by examining them through the lens of such criteria or stats.

For examples, when looking to invest in a mining (in this case, exploration) company, the investor can investigate:

  1. The experience of the management team
  2. Drill results
  3. Company’s exploration plans (also their acquisition plans)
  4. The jurisdiction the company’s properties are located in
  5. Share price
  6. Share structure
  7. Global price of the metals being mined
  8. And many other factors

All of the above factors can assist the investor in making an educated decision when it comes to investing in a mining company.

Mining is technical and difficult to understand, but I would argue that it’s that exact technical reliance that retail investors feel more comfortable with their quantitative assessment of mining companies, than they do about biotech companies. After all, there’s relatively little to assess when it comes to a success threshold for mining companies – they have the resource or they don’t. If there’s a resource, there’s a market for it.

Not so for biotech companies, which often have to deal with substitutable goods, fickle markets and giant competitors. And let’s be honest, how comfortable do you feel with figuring out if the tech actually works?

The science is often complex and each company is usually advertising proprietary technology (aka. secret!!!). So, it’s easier as an outside retail investor to compare the gold drilled in g/ton, than to understand how antibody discovery can accelerate the drug discovery process.

Biotech (medtech, medical, pharma, CRO and etc all included under the same umbrella for the purposes of this article – don’t quote us to a FDA official) is arguably the industry which is most affected by investor sentiment in the Canadian Markets.

Where twitter is the mecca for due diligence, it shouldn’t be a surprise to see the companies that are talked about the most tend to perform better in the capital markets. More talk, more confidence that advanced scrutiny means something.

Case study: NeuPath Health Inc (NPTH.V) vs Well Health technologies

Before everyone starts screaming… Yes, they are different.

WELL is a telehealth company that owns and operates a chain network of primary care clinics; NPTH is a company that owns 12 pain management clinics in Ontario.

But are they that different?

NPTH just announced a partnership with Pivot Design Group to expand their digital health capabilities. This should result in significantly more digital visits. It should be noted that as COVID shut downs took place, NPTH was able to convert 12% of their visits to be done virtually in Q2 (for reference COVID started really making an impact by end of Q1 2020. We’re talking about a 2 month initiative here, giving them a month to assess the likelihood of COVID’s longevity). The initiative with Pivot Design Group should help significantly increase NeuPath’s ability to provide their multi-modal care with patients virtually.

On the other side, according to their latest financials, 80% of WELL’s revenue originated from their in-person clinics. Well’s digital services have increased from 2% in 2019 to 20% in 2020 (first 6 months), but it is their clinical services that continue to be the major source of revenue for the company.

Speaking of Revenue:

A brief comparison of the latest Financials from NPTH and WELL.

NPTH:

REVENUE: $22,824,000

NET LOSS BEFORE INCOME TAXES: (3,974,000)

FULLY DILUTED MARKET CAP: $55.5 MILLION

WELL:

REVENUE: $20,805,144

NET LOSS BEFORE INCOME TAXES: (3,424,878)

FULLY DILUTED MARKET CAP: $1.2 BILLION

This can mean one of two things: either the market is overvaluing WELL, or undervaluing NPTH. It could very well be the former, or even both. But chances are, it’s the latter. Here’s why:

Well Health is led by one of the smartest CEO’s I’ve had the pleasure of interviewing. The company is cementing its footprint in digital health, an industry whose size was estimated at over USD$106 billion in 2019 and said to grow at 28.5% CAGR through 2026. The company did a masterful job of marketing itself as the leader in the field in the Canadain markets and once the name got out, every investor jumped on the bandwagon.

Alas, in our story, it is Neupath that is criminally undervalued.

Click here for an in-depth introduction to the company.

Some highlights (thank you to Jason from KASCorp for the assist):

  • $50 million revenue in 2019 and a 3-year CAGR more than 23%;
  • Potential to double revenue organically in their existing footprint, with growth opportunities through acquisition and virtual visits;
  • A multimodal approach to chronic pain management that includes interventions, opioid reduction, mindfulness, and a chronic pain self-management program;
  • EBITDA positive, a strong balance sheet and high insider ownership (>50%); and
  • Attractive valuation – at the RTO deal price, NeuPath is valued at $38.9 million, which is less than 1x trailing revenue vs. peers at 4-11x

 

So for Well Health, we have this:

Sentiment:

But for Neupath, we have, well, this:

One week comparison tweets about either companies using their stock symbol.

People are talking about Well Heath. They are tweeting about the company, they are talking about the company on CEO.CA and stockhouse forums – in fact if you are a retail investor, you most likely have come across Well Health Technologies at some point over the last few months.

Interestingly enough, Well’s popularity has reached such heights, that Cloud MD (a competitor) is using Well Health as a keyword for its google ads. (Kudos to their digital marketing team BTW)

NeuPath is the new kid on the block. Only listed for a few months, it has yet to gain the brand recognition it deserves. Their temporary setback is your interesting buy opportunity though.

In our opinion, NeuPath is on the rise – a Peter Parker pre-spider bite-and-Tony-Stark-mentorship, if you will. This is a good time to get in before the institutions catch wind of this opportunity themselves. As Tesla short sellers can attest to – you just can’t beat their numbers. Beat them to the chase instead.

 

FULL DISCLOSURE: NeuPath Health Inc is an Equity.Guru marketing client

 

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