By Sean Mason
Patient Home Monitoring is the first in a series of articles that examine Canadian stocks that could experience short-term stock price weakness due to the expiration of a private placement lockup.
It’s been a forgettable summer for Patient Home Monitoring (TSXV: PHM) investors. After touching $2 in late April, PHM shares sank to nearly $0.50 during the August global stock sell off before recovering somewhat to its recent price of $0.80. And with a private placement lock-up period set to expire on September 5, 2015, there could be additional pressure on the company’s shares.
The company, which provides services to chronically ill patients, became a Venture-exchange darling during the past year after going on an acquisition spree as part its goal to consolidate this highly-fragmented sector and increase annual revenue per patient by offering multiple services to each customer. Its ambitious plans allowed it to drum up enough investor interest to complete a $67.3 million private-placement financing at $1.50 per share on May 4, 2015.
Many of those private placement participants must have been watching nervously as PHM’s stock price continued slide, not being able to sell a single share due to the mandatory four-month hold period associated with this type of financing. General market weakness combined with poor company communication involving what initially appeared to be large insider sales by both its former CEO and Vice Chairman (when in reality they were just transferring the stock into a Healthcare Special Opportunities Fund), took its toll on PHM’s share price and, to some extent, confidence in the company founders themselves.
So, with the private placement lock-up period set to expire on September 5, 2015, nearly 45 million additional shares will become free trading on September 8. The $67 million question for shareholders, then, is how much stock will be sold and how low could PHM’s share price go?
Undoubtedly, some investors will sell if for no other reason than being underwater on their investment and perhaps upset with the company’s communication issue. Seeing that its lockup expiration date has been well publicized it wouldn’t be surprising to see some selling starting on Friday, September 4, as long-time shareholders could be hoping to accumulate more shares at a lower price once the ‘weak hands’ have been shaken out.
On the bright side, news from Patient Home Monitoring’s management in recent days could go a long way in restoring the confidence of institutional investors, which will be necessary if the company wants to see its stock price move significantly higher. PHM’s recently-reported Q3 revenue rose 255% year over year while recording a 244% increase in annualized quarter-over-quarter EBITDA growth. As well, on September 2, 2015, the company announced its plans to acquire Patient-Aids Inc., with reported EBITDA margins in excess of 30% and more than 75% in annualized year-over-year revenue growth.
Potential investors may play the wait and see game in the short term as new CEO Casey Hoyt has yet to prove he can execute on the company’s ambitious plans, manage its debt load, and ensure PHM continues to grow organically. Its stock’s expected graduation to Canada’s senior exchange will definitely help though.
For more insight into the Patient Home Monitoring story please see Fabrice Taylor’s SmallCapPower interview here.
Patient Home Monitoring is the first in a series of articles that examine Canadian stocks that could experience short-term stock price weakness due to the expiration of a private placement lockup. If you know of any stocks in which a large number of shares are about to become free trading and want the story to be told please email: sean@smallcappower.com
Disclosure: The author owns shares of Patient Home Monitoring (TSXV: PHM).
