Top Pick Co. Trading at Deep Discount, Time to Buy
Research Report

Think Research Corp. (THNK:TSX.V) earned a spot in Echelon Capital Markets' Top Picks portfolio for Q3/23 and is trading at a significant discount, reported Echelon Capital Markets analyst Rob Goff in a July 6 research note. Think develops and provides clinical healthcare software and services.

"The company's success stands at odds with its steep valuation discount to peers," Goff wrote. "We see Think as fundamentally attractive and catalyst rich."

Time to buy

Think is trading at 0.7 times enterprise value (EV):2023 revenues and 8.6 times EV:EBITDA. In comparison, the same metrics for WELL Health are 2.2 times and 13.3 times, Goff reported. Another peer, Dialogue Health, EBITDA negative, is trading at 1.5 times EV:2023 revenues.

While Think's shares have underperformed year to date, WELL Health gained 67% and Dialogue Health, 37%.

Think's current share price is about CA$0.34 per share, down from its 2023 peak of CA$0.65 per share in March. This supports a buying opportunity, noted Goff. Accordingly, Echelon rates Think Speculative Buy.

Implied 224% return

Further, Goff noted, the potential return to Echelon's target price on Think, CA$1.10 per share, from the current share price is sizable, at 224%.

Operational momentum

Goff summarized Think's recent successes. Last year, the healthcare tech company achieved cost synergies to the tune of about US$11.3 million (US$11.3M) and with record Q4/22 financial results, turned EBITDA positive.

This year, the company landed significant software-as-a-service (Saas) contracts that boosted its annual recurring revenues by US$10M-plus, wrote Goff. Of these, the standout is a five-year $40M Digital Front Door deal transacted with a regional health system in March. Digital Front Door is Think's digital patient engagement platform.

Think's financial results in Q1/23 exceeded the previous quarter's, with revenue of US$21.6M and EBITDA of US$1.1M.

Expectations for FY23

In the near term, Echelon expects Think will "continue to drive strong operating results, inching toward free cash flow positive," Goff wrote. As such, the equity research firm forecasts increases in revenue and EBITDA throughout the rest of 2023. For the full year, Echelon estimates US$93.4M of revenue, gross profit of US$49.2M and EBITDA of US$7.3M.

Echelon's bullish outlook is supported by two factors, Goff wrote. For one, Think has a strong foundation, nearly 90%, of business that is recurring or highly reoccurring. Also, the company's sales pipeline is the largest it has ever been. Echelon is optimistic Think will gain further "marquee" contracts this year.

"We see the potential for near-term deals to reflect total contract values well into the double digits ($M) and pipeline opportunities spanning both public/government health systems and private enterprises," wrote Goff.

Attractive for acquisition

Given its valuation discount and current and expected growth, Think is a potential takeout target, Goff purported.

"We believe Think's growing SaaS franchise and unique capabilities within its flagship Digital Front Door and Learning Management System offerings could provide tremendous strategic value to a larger company, such as WELL Health, in due time," he wrote.