American CareSource Is a Buy With Blowout Revenues

In recent weeks, there seems to be a trend away from energy/commodity stocks towards health care stocks. Within the health care industry, home health care companies have been performing well in a tough market. I recently posted on AFAM and thought I’d post on another company in this sector today.

Last week I bought some shares of American CareSource Holdings (XSI). XSI is an ancillary benefits management company that provides patients access to its network of ancillary service providers for the benefit of healthcare payors. The company manages a comprehensive network of 2,500 ancillary service providers at over 25,000 sites. It also provides customer service support and claims management services. It assists health benefits plan sponsors in expanding the range of provider choices available to their payors while reducing overall ancillary benefits costs.

Ancillary healthcare services include a broad range of services that supplement or support the care provided by hospitals and physicians, including surgery centers, free-standing diagnostic imaging centers, home health and infusion, durable medical equipment, orthotics and prosthetics, laboratory and other services.

Here are some reasons I like XSI:

1. The company recently reported blowout revenues for the second quarter of 2008. Revenues year-to-year were up 208%, and up 13.1% from the first quarter.
2. There have been four recent open-market insider buys (although at prices below $4).
3. Low institutional ownership. XSI recently passed the $5 price threshold. Many institutional investors will not buy stocks that trade under $5. Now that XSI is trading above $5, it will start to show up on more institutional stock screens.
4. XSI was recently added to the Russell Microcap Index. It’s market cap is currently around $85 million. If the company continues its fast paced growth, it is possible it can reach the minimum Russell 2000 threshold (approx. $200 million) within the next few years. Some hedge funds buy growing small cap companies anticipating they will reach the Russell 2000 threshold, which can give XSI a boost long before it actually reaches the $200 million market cap level.
5. The company recently announced several new client agreements. Its one-stop-shopping approach toward reducing their clients' ancillary service costs seems to be resonating in the marketplace.
6. Strong balance sheet - almost no debt.

One caveat is the stock has increased quite a bit and may be due for a pullback. A conference call to discuss second quarter financial results is scheduled for August 14.

Full Disclosure: I am long shares of XSI.

Comments

[George Spri...:]

XSI reported excellent revenues and raised guidance. The stock is trading around 6.45 now.
biz.yahoo.com/iw/08081...

2008 Aug 14 01:48 PM