I truly think this stock (ADVH) could be back in the double digits in 1999. There are a variety of factors coming together in medical economics that will drive it.
I think of it as a software/Internet company that is the first to use the Internet for real back-office functional improvement. It has no real competition right now, I'm sure that will come with time. Medic+ has a competitive system in the works but it is looking like it would be less functional and ten times as expensive. Healtheon, founded by the cofounder of Netscape, is still trying to figure out what doctors need, so they are mostly doing front-office stuff.
The CEO of ADVH is Jon Edleson, the cofounder of Physicians-Online po.com who is also an MD and internist. He has been looking at this solution now for five years, this Mayo clinic contract is one of the first really big ones, there will be others. This is the one that validates this company is in transition from a low margin PPM to a high margin intranet developer and software seller.
Dr Chart is a tool that will allow physicians to lower costs and improve quality of outpatient care, this is what the real buyers of health care (employers) are looking for these days. Only when you improve outpatient care do you lower the number of expensive inpatient bed days. Incidentally, most patients do not like going to the hospital either.
The Street sees this company as a small PPM (Physician Practice Manager, like Phycor) who has been taking balance sheet hits to assets. However ADVH has taken its one big hit already (a write-down in A/R and assets Q298), unlike MDM and PHYC, who will continue to write down assets and carry significant amounts of debt, ADVH has no debt. The total stock issued is about 10 million shares (company has been buying back shares), if they make a million a month in profit they will have earnings of 0.40 per share. A modest 25% growth rate makes them a $10 stock.
This is still a risky micro-cap. The funny thing is that they have been so out of favor that they are still selling for 2 9/16 when they have cash of $3.00 per share. They are out of favor because they did a stupid thing, loaned money to a medical group client, who used the loan and was not paying ADVH fees. So ADVH was booking accounts receivable from this group and holding the loan as an asset. They wrote that loan down and wrote down A/R in Q2 98 which caused them to essentially show no profit (and negative cash flow) for the prior 12 months where there had been reported a dollar per share profit to that point. That CFO is gone, and I've been assured by one of the VP's that there are no more time bombs in the balance sheet. I have no way to independently verify that.
MARKET GUIDE REPORT 10/25/98
54 Institutions own 75.4% of the 10.1 million common shares outstanding. (I think this number is out of date) The average institutional ownership of the Business Services Industry is 23.9%, and the average institutional ownership of the S&P 500 as a whole is 61.9%.
Insiders hold 7.17 million shares. In the last 6 months, there have been no insider purchases, and have been 3 insider sales for a total of 43.0 thousand shares.
Equity and Debt Composition
Common Stock $.01 Par, 6/98, 15M auth., 10,065,584 issd., less 8,937
shares in Treas. @ $75K. Insiders control approx. 7%. Seven others
own approx. 64%. IPO 10/96, 2,300,000 shares @ $13 by Cowen & Co.
et al. (As of 12/97) The Company reports no short term or long term
debt.
Other Valuation Multiples:
Advanced Health Corp. trades at a lower multiple of sales than the industry average.
Price to Cash Flow (TTM) NM
Price to Free Cash Flow (TTM) NM
Price to Sales (TTM) 0.3x
Price to Book (MRQ) 0.3x
Price to Tangible Book (MRQ) 0.4x
For technicals:
iqc.com
Zebra
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