The shares of Nobilis Health Corp. (NYSEMKT:HLTH), a rapidly growing consolidator in the health care sector, traded up to over $9 last June before taking a rest and then being hammered down by a series of events including the company's announcements of a change of auditors and a delay in the filing of Q3 2015 financials. The delay has triggered a cease trade order on management in Canada and a delisting warning in the U.S. In addition, the company in the past week parted with its CEO; the Executive Chairman of the company took over the position.
These circumstances, with the stock down 75% from its 2015 high, give those who know about the company and its growth prospects a chance to buy shares at what appears to be an extraordinarily cheap price -- if they are willing to make the speculative bet that the company's restatement will unfold in a positive way as has been partially disclosed already by the company, and that there is nothing negative that hasn't been disclosed yet.
Impact of accounting restatement already disclosed
In a January 5, 2016 update on the coming restatement, the company said the following:
"Based on management's preliminary assessment to date, the Company does not believe there will be any significant changes in revenue or Adjusted EBITDA for the periods covered by the Restatement Reports, except for approximately$700 thousand in additional reported revenue and an anticipated minor positive impact on Adjusted EBITDA for the three months ended March 31, 2015 and the six months ended June 30, 2015."
If there is really something bad coming for revenue and EBITDA when they announce the restatement details, I doubt that the board members and legal counsel would have allowed a statement like that to be put in the news release. So, it is very likely the restatement details, once announced, will not introduce any big negative surprises on these two key metrics.
In the meantime, I would guess that most institutions that know the stock are not willing to take a large position in this cheap growth stock until they see the details - just in case. So, there has been little support for the stock based on fundamentals.
Growth stocks don't stay at four times EBITDA for long
In the October 2015 investor presentation on its website, Nobilis estimated 2015 revenue at $233 million, up 170% from 2014 due to its fast-moving program of acquisitions.
Also in that presentation, it estimated 2015 EBITDA at $42 million, which works out to an approximate EV/EBITDA ratio of four (assuming the current stock price, shares outstanding of 67 million, and June 30 cash balance of $31 million and long-term debt of $18 million.)
One analyst covering the company, Russell Stanley of Mackie Research, said in a recent report that the company has provided guidance of 2016 revenues of $320 million and EBITDA of $65 million - all without any additional acquisitions. The analyst previously discussed Nobilis in a positive way in a recent interview which can be accessed here.
If that is all confirmed when management updates guidance, it would mean the forward 2016 EV/EBITDA is much less than four. Keep in mind that similar, though larger, companies in the health care industry have EV/EBITDA multiples ranging all the way to 17, with the average calculated by Mackie Research at around 10.
Nobilis shares have suffered greatly and are now trading at a deep discount.
The company's management has already shown it can expand rapidly by acquiring other health care companies and, in effect, implementing in a new approach that generates more revenue and efficiency in the businesses they acquire. The industry is fragmented and there is still a lot of opportunity for the company to expand further by acquisition.
With the restatement announcement coming any day and likely to confirm the positive summary already provided by the company, and with management then updating the market on its plans and providing positive updated guidance as anticipated, the shares should recover.
Making this bet would be speculative, because we don't know for sure that the uncertainty will be over, but it looks that way, and anyone short the stock right now should be nervous.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HLTH over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.