The Forgotten Sector?

Written by GSCR Staff   
Friday, 20 February 2015 07:35

Global terrorism and how to combat it. Immigration. Cheap oil and gas.

Everyone seems to have forgotten that another enrollment period for Obamacare has come and gone. This may be fortunate for the POTUS.

 

Over the past several weeks we have been somewhat guilty of ignoring what is the behemoth sector that is healthcare. A stock that appears to be a solid buy is Liberator Medical Holdings, Inc. (NYSE – LBMH - $3.84). At our first technical glance the stock is very bullish in all durations out to 200-day EMA. A short float of 5.4% indicates there are not many doubters out there as well. The economic factors may also be in play.

 

Liberator together with its subsidiaries distributes direct-to-consumer durable medical supplies for seniors and others with chronic illness in the United States. The Company supplies urological, ostomy, and diabetic medical supplies, mastectomy fashions, and diabetic supplies. The population is aging, so the Company is certainly in an industry that is going to grow exponentially in the future. The Company recorded record revenue of nearly $75 million for its FY that ended Sept 30 last year and record Q1 FY15 revenue of $20 million. Consensus analysts’ estimates are for 9% growth to $82 million for FY15.

 

A dividend yield of 3.5% is another factor that makes LBMH very attractive. Additionally, a forward P/E of 13 versus a trailing P/E of 25 is another check mark for us. Finally, when we consider small cap healthcare, we must always consider M&A. Is this stock attractive as an acquisition? The chart below illustrates a comparison of similar small cap healthcare stocks in an important M&A metric of EV/EBITDA. (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization). The lower the better, unless the value is negative which is bad.

 

EV/EBITDA LBMH COMPARABLES

 

MM.02.20.15.LBMHchart

 

 

 

The average EV/EBITDA value for non-negative stocks is just over 38. LMBH stands out here in a big way.

 

LMBH appears to be on another accumulation run. The healthcare sector continues to be a solid play as well. We think the stock climbs back to near $5 level by 3Q15.

 

Have a great day!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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