Patient Home Monitoring demands patience

Jun 8th, 2015 – Comment

The best short term outcome for PHM would be a period of base building.


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PHM LOGO

Dear Lou,

I have a classic momentum call to make, and seek your advice. I bought PHM at $0.30, and while it has seen $2.00, its now wallowing around $1.60. It’s a consolidation play with high forward P/E, living off its good news momentum.

This is different, I think, from a pharma or biotech company that would live or die by its clinical trial results. PHM could be more like a Valeant or Walmart play, in terms of its growth. I would hate to sell too soon.

My question concerns valuation, and what the 1 – 2 year stock price could be. How does one value a play like this ?

Sincerely,
Tom

 

Hey Tom,

Thanks for the assignment and congratulations on making a great call. This will be the second time that I inspect the charts for Patient Home Monitoring Corp. (PHM TSXV). The last time was on December 9, 2013 when the shares were trading for $0.255. Brent wanted a second opinion and the research identified a number of issues that he needed to consider.

The first item was that the stock had made a run to a high near $0.375 by September of 2013 and had pulled back. There was also resistance that was coming in along the 50-day moving average and it was advised to wait for indications that PHM was setting up for a new uptrend.

Another inspection of the charts will help answer some of your concerns.

 

 

 

PHMThe three-year chart illustrates the new leg up that started in June of 2014 as the stock bounced off of $0.225 and broke above the 50 and 200-day moving averages. A golden cross formed in early July of last year indicating that buyers had taken control of the market and investors could expect a continuation of the uptrend.

The shares moved from $0.33 in July of 2014 to a 52-week high of $2.01 in April of 2015. For those that got on the ride at the right time the returns have been nothing short of spectacular. What is evident from the chart is that the shares got overbought as they reached the 52-week high. At that juncture the MACD and the RSI turned lower informing investors that this champion was going to need to take a breather.

 

 

PHM2

The six-month chart highlights the sell signals provided by the momentum indicators in April. The retreat has led to a test of support in the $1.40 range. We can also observe the resistance along the 50-day moving average. The best short term outcome for PHM would be a period of base building.

The active strategy at the company is to find strategic acquisitions in the home monitoring sector. The financial results for the second quarter of 2015 shows a healthy increase in revenue and there are more takeovers in the pipeline. I can’t answer your question as to the valuation of the shares over a two year period but it appears that there are sufficient acquisition targets to feed the engine driving this train.

 

Next time I will investigate the case for CanWell Building Materials Group (CWX TSX) for Peter.

Make it a profitable day and happy capitalism!

 

 

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