Another Carebook Update -- Building A Rolls Royce

To anyone who has purchased Carebook stock over the last few days or weeks, I am just as frustrated as you are. I feel the urge to sell as well, but I know we are nearing a bottom and the best thing to do is stay patient.


"It takes six months to build a Rolls Royce and it takes one week to build a Honda Civic."


Carebook is building a Rolls Royce; remember that this isn't going to happen overnight. After the explosive growth we saw with Jack Nathan Health (TSXV:JNH), expectations among telehealth investors are higher than ever. I can tell you with confidence that the Carebook growth story is not going to play out overnight. With that being said, I do believe the stock is finally starting to find a floor at these levels as the undervaluation is becoming too extreme. On top of that, there is likely to be a news-driven catalyst in the near-future which sparks an inevitable reversal in the trend.

Remember that Carebook is not strictly a telehealth play. While the company started as a patient portal with Copeman Health Clinic (which they still have as a client), they have evolved into something greater: an SaaS company customer engagement, monitoring, and analytics platform which has applications across different verticals and markets globally.


Why does this even matter?

Because SaaS companies will have higher margins than non-SaaS type companies as their operations are digital and their revenue is recurring. For example, companies like DOC and WELL have much lower margins; since they actually have doctors on the payroll and operate some physical clinics, so general & administrative costs are higher. This is not just important in principle, but also needs to be taken into account in valuation, as high-margin SaaS-type models should be assigned higher multiples.


When we look at the current valuation of Carebook, the market is assigning a ~4.5x EV/sales multiple to the company’s shares, while lower-margin peers are trading at ~10x EV/sales.

We are talking about a high-margin, SaaS-type business model, which is backed by the most successful healthcare PE guys in Canada.


The reason I mention the backers of the deal is because premiums are typically assigned to companies which have heavyweights behind them. For example, WELL has always traded at a premium partially due to the involvement of billionaire, Li-Ka Shing. The market knows that having a billionaire behind your deal is advantageous in terms of industry connections and access to capital and thus assigns a premium to the company’s shares.


In the case of Carebook, there is a VERY successful private equity firm which has already had one successful exit to Telus (Medisys) as well as some heavyweight names like Josh Blair and Phillipe Couillard on the board of directors. I am assuming this is part the reason why the initial Carebook offering was done at a $2.50 valuation, a premium. They were able to raise $20 million at that price, which is not a small number.

Since Carebook has listed, basically the only news the company has put out is the Native Ads contract, which should be kicking off shortly. I can sure tell you for a fact that Carebook did not go public, then proceed to hire Native Ads, just so they can sit around idling without any news. On top of that, the company is in advanced discussions with a major potential insurance client that would serve as a beachhead in that market. Lastly, there is the regulatory approval of the My Vitals / COVID-19 smartphone app will precede multiple contracts in that segment within the Canadian market and globally -- however, I don’t expect to see results on this for a while as the HC approval process is not a simple one.

As I said before, I am also quiet frustrated as CRBK has become quiet a big position for me. But I formed my initial bullish stance on Carebook after doing about 30 straight hours of in-depth research, phone calls, and modelling. I've read the listing statement multiple times. I've read Doug Taylor's analyst report multiple times. I have done my homework on this and I am a strong believer that Carebook will succeed in the long-run. Nothing has changed since I did my initial analysis except for CRBK’s share price, the fundamentals have remained the same. In the past, I have too often made the mistake of letting short-term price movements change my original thesis. I will not make that mistake again with Carebook.


I really cannot imagine Carebook stock trading for anything less than it currently is, as it is already a table-pounding buy at these levels. I try not to average down on my losers too often as I find I am better off averaging up into the positions that are executing, but the Carebook story is just beginning. The company has not even announced a single piece of fundamental news aside from the Native Ads stuff.


With that being said, I have averaged down on my position once again as I still believe there will be a major news-driven catalyst in the near future which sparks a reversal in the chart. Also keep in mind that insiders are blacked out until the company releases their quarterly financial statements, which will happen in the coming days.


- SmallCapInvestor



UPDATE -


Carebook announced an acquisition THIS MORNING...


https://ceo.ca/@newswire/carebook-technologies-enters-into-loi-to-acquire-leading


I believe this news is just the tip of the iceberg in terms of upcoming news flow for Carebook. They paid 3.5x EV/sales for an immediately accretive acquisition which adds $4M to top line revs and is PROFITABLE. The acquisition increases the potential client pool and more importantly, highlights their intent to implement inorganic growth into the business model. This is a major step in the right direction for Carebook and I expect we will see even more major news in the near future.


DISCLOSURE & DISCLAIMER

DISCLOSURE: Author owns shares of TSXV:CRBK and may choose to buy or sell at any time without notice. Author did not receive any compensation for publishing this article. 

DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Small cap companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.

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