Medexus common stock reached a high of $7.70 per share due to a positive market reaction to their latest press release. At a time where the general economy and the markets are very uncertain and volatile, the company has generated unrealized gains for its shareholders over the last year of +95%.
This sort of market appreciation has to be matched with an appropriate amount of business appreciation otherwise the stock would be inappropriately priced. For this great appreciation in market value, we have a case where it has been matched (some would argue asymmetrically ) by the overall business performance.
Third Quarter Fiscal 2021 Financial Highlights:
Total revenue reached $82.7 million for the nine-month period ended December 31, 2020, compared to revenue of $48.7 million for the nine-month period ended December 31, 2019, as a result of the acquisition of IXINITY® as well as unit demand growth of the Company’s key products in the market over the period.
Ken d’Entremont, Chief Executive Officer of Medexus, noted, “The fiscal third quarter of 2021 was a record quarter with $31.5 million in revenue. We continued to generate solid growth while managing our expenses and the $5.3 million improvements in operating income was a strong reflection of that…”
Total revenue is probably one of the most important business variables any investor in common stock should focus on, and watching the top line grow at such an exponential rate over the period ending December 31, 2020, is amazing, to say the least. Revenues have grown by approximately +70% since the last nine-month period ended December 31, 2019.
The increase was mainly due to the acquisition of IXINITY as well as unit demand growth of the firm’s key products in the market over the period. They have also enrolled more than 73% of patients for its ongoing Phase 4 clinical trial (post-marketing surveillance trial, or informally as a confirmatory trial) for IXINITY that will help them evaluate the safety and efficacy of IXINITY in previously treated patients.
It’s important to realize that once they have generated this business and made strides to improve the product for their customers, they need to control their cost to run the business as a going concern. Although revenues are an important factor, and the profitability of a business, management can only control their administrative costs and other operational expenses.
The cost to produce their products has increased over time but this is merely a volume factor. It seems appropriate to assume as Medexus produces more of its products and acquires more customers over time the cost of goods will increase. If they are able to manage their operational leverage this should not be a concern.
Selling and administrative expenses as a percentage of revenue decreased to 41.8%, from 62.4% for the same period last year, as the Company continues to leverage its platform and significantly increase its revenue with only modest increases to operating expenses.
Since the selling and administrative expenses are a smaller proportion of their total revenue it shows efficiency in the operations of the business in line with an improvement in operational leverage. This strict cost control has allowed the business to invest profitably in capital expenditures over the last few years.
Since 2017 Medexus has deployed an average of $730,000 on future projects after paying off any operational costs. This average of $700,000 can be thought of as expansionary capital expenditures where management is attempting to increase the intrinsic business value over time. As they deployed more capital their net earnings and operational earnings will ‘hopefully’ improve, and this is exactly what we’ve seen over the last few months.
Achieved operating income of $4.2 million, compared to an operating loss of $5.8 million for the same period last year.
Net loss for the nine-month period ended December 31, 2020, was $23.9 million, compared to a net loss of $4.1 million for the same period last year. Adjusted Net Loss* was $3.3 million compared to $11.7 million for the same period last year.
Adjusted EBITDA* for the nine-month period ended December 31, 2020, increased to $13.1 million compared to $1.8 million for the nine-month period ended December 31, 2019.
So, what we have here is:
- A business that has a sustainable competitive advantage as it needs very little capital to invest into maintenance and only invests in organic growth & strategic acquisitions. This is reflected in their rapid increase in revenues after maintaining operational efficiency.
- The business is not running efficiently on its own. It has a set of management that has a vast amount of experience in the industry allowing it to utilize shareholders’ capital in productive ways. This is reflected in both the market appreciation of the common stock, the increase in business value overtime from an increase in revenues and operational earnings.
Analysts are expecting the firm to have total sales of about $110 million at the end of 2021. This high growth in sales and margins has the companies target price on average in the $12-$17 per share range(according to analysts).
Seems like this stock still has some legs, whilst the general market is giving back gains.
But again, this is merely a guess. The reality of the beauty contest that is the stock market is that if every stock is somebody’s favorite, then every price should be viewed with skepticism even those that may seem like risk-free investments.
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