The Cheat Sheet:
This blog is here to serve as a resource to investors– both weekend warriors and institutional investors– seeking to get a handle on the financial health and the transactional developments in the behavioral health industry. In the upcoming posts, an insider’s perspective will be offered to assess the behavioral health industry using the lense of financial and market analysis. Tools such as DCF analysis (discounted cash flow), EBITA assessments (Earnings Before Interest, Taxation & Amortization), equity research for the few publicly operating behavioral health providers, market analysis, financial modeling & transaction reports providing market-based valuation metrics will be provided to help gauge market conditions, opportunities for investors and potential hazards.
The Whole Megillah:
By conventional standards, a small cap company’s qualifying size ranges between an approximated 300 million and 2 billion dollars of value in outstanding shares. In the throes of a national opioid epidemic with a sector with $50 billion in annualized revenue at a combined 17,000 facilities throughout the US (and counting), the US behavioral health market is dominated by companies that are largely relegated to micro-cap and nano-cap features; meaning outstanding share valuations well under the $300 million valuation.
In these conditions alone– not to name the myriad factors that present secular challenges to the space (more on the topic in an upcoming post)– it can be particularly onerous collecting accurate and actionable investment data. Mymedinomics is here to change that or, at the very least, shed some light into a particularly opaque sector presently operating with robust investment opportunities.
The blog will draw primarily on publicly available information, theoretical financial models, real-time news and developments in the space (both transactional, legal & legislative), personal experiences, and national & regional trends both for the larger healthcare sector and more specific to behavioral health to build a comprehensive and detailed analysis of the sector as a whole and the financial health of particular industry actors.
As far as disclaimers go, many of the posts will be technical in nature– using graphical and statistical representations and terms specific to the language of accounting and investments; I will do my best to provide concise and accessible writing suited to novice and seasoned investors alike. I wholly expect input from readers, requests for coverage and points of criticism (perhaps support as well: fingers crossed) to serve as guidance for myself; after all, this is a learning process. Please direct any questions, comments or concerns to my email address at YonaYRemer@gmail.com.
Two inaugural graphs are added for your review below, with short paragraph-length analyses provided beneath.
Above: This graph provides YTD (year to date) index performance of the healthcare sector relative to S&P performance (1/5/17-1/5/18). Unsurprisingly, the bull market for equities in 2017 produced some exceptional returns across the board. In fact, healthcare as a whole lagged slightly beyond the general market performance, while still realizing returns in excess of 20%. Of consequence and missing from the graph are some of the conditions that the healthcare sector had to contend with this previous calendar year, which when taken in perspective shed some important light on the sectors upside. For starters, few sectors were as vulnerable to structural changes as that of healthcare. In the past year alone, the markets witnessed a near repeal of the affordable care act (ACA), attacks directed towards pricing models for pharmaceutical companies, tax reform that stood to have an outsized impact on the healthcare industry (deductions and Health Savings Accounts were at jeopardy at times), among many other factors. In summary, while healthcare as a sector might have underperformed the market on a whole, it thrived given the volatility and uncertainty in the space.
Above: This graph tracks YTD (year to date) share performance of the 6 publicly traded companies that derive their primary or secondary sources of revenue from the operations of behavioral health facilities. As can be seen, their performance– generally speaking– is a lot less elegant than that of the healthcare sector on a wholle. The purple line represents the healthcare sectors performance as a benchmark relative to the other individual corporations. The great divergences in performance reflect some of the perils endemic to the space. Of the 6, only 2 outperformed the healthcare space as a whole; 2 lost value, with Nobilis Health losing 40% of its share price. Individual posts will be dedicated in the future to a closer analysis of quarterly earnings reports from each of the companies above. But, the graph illustrates a simple point: while a sector itself may be promising, those conditions often do not extend themselves to all participating companies. The differences between a successfully operating behavioral health firm that can grow market share, operate with health margins and create value for investors are often pretty small relative to their counterparts that struggle to capitalize on the ripe market conditions.