Medical Transcription Billing: A View From The Perspective Of A Preferred Investor

| About: Medical Transcription (MTBC)
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Summary

At first sight MTBC looked like a potential high-yield win. Its business model appeared rational.

Then I looked at the numbers, and folks, to be kind, they're not good.

Then, as a lark, I checked out its past two-year or so preferred performance and came to the conclusion that it takes all kinds to make a market.

While perusing one of my favorites sites, Preferred Stock Channel, in search of newly issued preferreds, I came across a company I was unfamiliar with - Medical Transcription Billing Corp (NASDAQ:MTBC) and its preferred (NASDAQ:MTBCP).

For those of you unfamiliar with my preferred investment philosophy, my article "The Basics Underlying Investments Viewed Through the Eyes Of A Preferred Investor" will explain how and why I became a preferred investor. More importantly, it will provide you the information necessary to fully appreciate and understand the process I utilize to research and determine whether or not I will invest in a particular company's preferred equities. What follows is that process.

When considering the acquisition of MTBCP preferred shares, it's necessary that we view that company through a different set of eyes than we would were we interested in acquiring its common shares.

Consequently, unlike its common cousins, it's necessary that we first study the offering prospectus of the preferred shares we are interested in acquiring. To accomplish this, let's visit my favorite preferred search site, Quantum Online. Below is a snapshot of a slice of the MTBC page:

A quick review informs us that MTBC is an IT company that provides web-based solutions and related business services to health care providers. It IPO'd with a market value of $45.6 million, making it a micro-cap company.

Let's click on Find Related Securities to examine any preferreds this company has to offer:

Here we learn that MTBC offers a single preferred (MTBCP) that was initially offered at 11.00%, a whopping yield that informs me that this is probably a very risky investment.

Now let's click on MTBCP. Because this page contains more information than can be covered in a snapshot view, I suggest you open the page and view it as I discuss the information that most interests me:

  • I like that this preferred is cumulative, meaning in an event that payments are suspended, they accumulate and are owed to the shareholder, and will be repaid in full if and when the payments are restored. And they must be completely repaid before the common shareholder will be allowed to receive any further dividend payments. Additionally, there are probably more sanctions and restrictions placed on the company, and will remain so until the missed payments are repaid in full. As a rule, I only invest in cumulative preferreds.
  • These shares are callable on 11/4/20 at $25.00 plus any dividends that will have accrued at the time.
  • It pays a dividend of $2.75 per share per year, or 0.22917 per month, to be paid on the 15th day of each month.
  • At the time of their IPO, 11/4/15, these shares were unrated by Moody's and S&P, which really doesn't concern me but might concern a more conservative investor.
  • Dividends are eligible for the preferential income tax rate of 15% or 20%. You should be aware of how these tax ramifications will affect your investment bottom line.
  • As usual, upon liquidation, preferreds rank senior to commons and junior to debt, both secured and unsecured.

However, simply knowing and understanding the preferred issues of a company in no way allows one to gauge a company's long-term health or to fully comprehend its business model. To better accomplish this, a knowledgeable investor should be able to dig down into the numbers and at least marginally understand a company's financial statements and conference calls.

Sounds reasonable, but extremely difficult for most investors, including myself. I often rely on interpretations by SA contributors who have proven more knowledgeable than myself. Unfortunately, the vast majority of their articles are written with the common shareholders' interests in mind, rather than those of the preferred shareholder - which, on occasion, might not be in alignment. Also, as I mentioned above, other SA members might view their conclusions in a different light. When this occurs, I simply try to figure out which argument sounds the most logical. Sorry, that's the best I have to offer.

Consequently, rather than attempting to digest and understand complicated financial statements, which I realize I won't be able to realistically accomplish with any degree of accuracy, I usually visit two websites to get an abbreviated, yet broad-based, view of the particular company I'm considering making an investment in. These are Yahoo Finance and FinViz. I have cued each to open to the financials of MTBC.

Above is a screenshot of MTBC's almost two-and-a-half-year chart, which was as far back as it could go. Frankly, this company troubles me big time. With numbers like this, it's no wonder they have to offer perferreds with a coupon rate of 11%. As far as I'm concerned, this is the picture of a company that has not performed well. The price of its shares during this time have fallen from $3.75 on 7/27/14 to its current $0.79, a $2.96 drop in value. And to make matters better or worse depending upon the way you choose to view it, according to Dividend Investor.com, this company pays no common dividend at all. Might save money, but it offers no canary-in-the-coal-mine protection.

Above is a screenshot taken from a FinViz view of MTBC's present financial highlights. Its current market value is a paltry $9.12 million. It lost $5.90 million on sales of $21.00 million. Although its D/E is a low .88, its shows a -27.50 YTD loss. For those of you still interested as you might be in base jumping, extreme sports and an occasional turn at Russian Roulette, please continue reading.

Now let's see how its preferred performed, as illustrated by the following MarketWatch chart:

Yes my friends, the investment world is populated by a number of investors who enjoy skydiving without parachutes. Why not? You have nothing to fear until you reach the ground, but think of all the fun you'll have getting there. At these prices, the yield is a towering 10.79%, which you can enjoy until the moment you land. Bon voyage.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.