Going back three years, Sensus Healthcare Inc. (NASDAQ: SRTS) stock price began a two-year period of flat trading before taking off in November 2021, going from just over $4.00 per share to a 52-week high of $15.25 per share in mid-2020. August 2022.
From there, it traded unevenly, from a range of around $12 a share to close to $15 a share, before the earnings report came in, at which point it fell from the mid-$14s to close the November 4 at $6.34 per share.
In this article, we’ll take a look at the latest earnings figures, management comments, and why the market reacted so strongly to a report that doesn’t seem to warrant such a strong response, at least when looking at the numbers.
Third quarter revenue was $9 million, up from $5.5 million in the third quarter of 2021, an increase of 64%, but a difference of $0.54 million. The improvement in revenue came from an increase in units sold, an increase in service revenue and the impact that COVID-19 had on results in 2021.
Net income for the reporting period was $1.8 million, or $0.11 per diluted share, for a loss of $0.2 million. Last year, in the same quarter, the company had $0.2 million in net income, or $0.01 per diluted share.
Adjusted EBITDA for the third quarter was $2.3 million, compared to $0.5 million for the third quarter of 2021.
Gross profit was $5.9 million, an increase from the $3.2 million gross profit in the third quarter of 2021.
At the end of the quarter, SRTS had cash and cash equivalents of $37.6 million and had not drawn on its revolving credit facility as of September 30, 2022.
As the numbers show, there was nothing to justify the huge stock sell-off. The only thing I can see is that investors may have factored in the weak Q3 2021 offsets and may have been disappointed, even though there was an overall improvement. I don’t think that’s what caused the sell-off itself, but it may have been a piece of the puzzle that went into the decisions to do it, taking other things into account.
The main obstacles that the company faced and is facing include the weak economic environment, the impact of Hurricane Ian on the Florida market, high interest rates and weak compensation starting in 2021.
We already talked about weak compositions, so I won’t repeat that.
Regarding the current weak economic conditions and accompanying uncertainty, the company said the impact is not related to non-melanoma skin cancer treatment, but rather the recession will likely have a negative effect on demand for cosmetic procedures. And if the recession is long and deep, that would have an impact on SRTS performance.
As for how higher interest rates would affect the company’s performance, it is not related to the demand for its products, but to the impact on “doctors’ ROI.”
Regarding Hurricane Ian, the Florida market continues to face challenges as several of the company’s largest clients have not reopened their clinics, which will undoubtedly have a negative effect on the company’s numbers in the fourth quarter. .
Clearly the company will struggle for a couple of quarters, but I still don’t see that justifying the market’s response to the headwinds experienced in Q3 and continuing into Q4.
Florida clinics will eventually reopen, interest rates have no impact on demand, and weak 2021 offsets will come to an end at the end of 2022.
That suggests to me that investors probably looked at all of this in total and ran for the exits. My reason for coming to that conclusion is that all companies face weak economic conditions, and after reporting weaker numbers in several cases, they never had the sell-off that SRTS has.
Not all was negative in the earnings report, as the company shipped its first 10 TDI systems to hair improvement centers. That won’t have a significant near-term impact on SRTS performance, but it could provide another major source of revenue if market share increases.
That said, management noted that it will continue to focus primarily on its core dermatology business.
Another positive was that about 40 percent of their customers agreed to extend their service agreements after their one-year warranty expired. This should be a decent, recurring revenue stream for the company in the coming months and years.
I think the market’s response to the company’s earnings report and management comments was exaggerated. Yes, there were several factors that had a negative impact on the company, but in addition to the impact of the economy and the interest rate on ROI, these are temporary situations that are resolving themselves. There will probably be a weaker quarter, and possibly two for the company, but I don’t see demand going away for its core dermatology business. I think it will actually continue to grow, possibly outside of cosmetic treatments that are likely to fall in demand.
But overall, this looks like a good buying opportunity for investors. Since there is no way of knowing how the market will respond if economic conditions worsen, it would be better, in my opinion, to employ a dollar cost averaging strategy and careful position sizing if taking a position on SRTS.
I have no doubt that the stock price will recover over time, and even if the company underperforms for a quarter or two, it will come back because the market it serves is not going away and demand will continue. get up for your treatments.