Conclusions On 5 Stocks -- ARHH, STX, STAY, PTON, CYRX
Updated: Dec 6, 2020
In last month’s letter to Perimeter's investors, I mentioned that there were six new potential investments under consideration. Here are my conclusions on five of the six names. The sixth name is now several names on which I have not concluded. One of your fellow investors rather brilliantly recommended air filtration companies. I was too deep in my funk fighting the fed to act on it.
Remember these are not Investment Recommendations and should not be construed as such. While the prices are intraday on 10/30/20 the actions were taken earlier at likely different prices. Remember that I do change my opinions with new facts or insights. I assume have no future obligation to keep you informed. Consult with your investment advisor before making any investment decision.
COMPANY 1
Assure Holdings
symbol: ARHH
Asymmetric portfolio
trades on the pink sheets somewhere around $0.75
DESCRIPTION/THESIS
This is a microcap with outstanding management. It is in the neuromonitoring business. Its long term aspiration/strategy is to roll up neuromonitoring as some of the team did in the flight to life business at Air Methods.
DECISION
Not Now. There was an unexpected loan default. I continued my research and am still interested.
NEXT STEPS
Monitor aggressively. Watch for resolution of default. Read opinion precis below.
COMPANY 2
Seagate Technology
symbol: STX
Core Value portfolio
$47.68
DESCRIPTION/THESIS
Commodity and enterprise disk drive and Solid State Disk manufacturer with 5+% yield
DECISION
Bought a tiny position based on what may prove to be a favorable ‘21 product cycle. Middling valuation limits my enthusiasm.
NEXT STEPS
Monitor for price improvement or fundamental development. Probably no hurry.
COMPANY 3
Extended Stay America
symbol: STAY
Core Value portfolio
$11.26
DESCRIPTION/THESIS
Well managed extended stay hotel with “tan collar” strategy. It is in the much-maligned Hotel REIT group. The valuation has increased but it still looks very cheap.
DECISION
Nothing done. I am trying to guess when and if to buy shares. The research generally confirmed my high opinion of the company. COVID trends are working against the stock. The company reports earnings on 11/10.
NEXT STEPS
The risk of not owning it is that the company might reinstate the dividend with Q3 earnings. For now, I have decided to wait at least for Q3 earnings to be reported on 11/10/20
COMPANY 4
Peloton
symbol: PTN
Asymmetric portfolio
$110
DESCRIPTION/THESIS
Exercise equipment made popular due to the virus. I finally let the valuation extreme push me to short it.
DECISION
Short 1,000 shares via put options equally divided between April ‘21 $60 and Jan ‘22 $50 puts.
NEXT STEPS
I am looking to add to this position and similar names with extended valuations and weak moats.
COMPANY 5
Cryoport
symbol: CYRX
(Asymmetric)
$40.33
DESCRIPTION/THESIS
Media and logistics for stable transport of genetic materials for test and revision (I think of it as necessary for designer genes but that is probably not the correct technical language) Similar to BioLife Sciences which we also own.
DECISION
Watched the stock come off of a sharp peak and get closer to an attractive price. FOMO drove me to buy the stock and immediately write an equal amount of $50 and $60 February ’21 calls. Should things work as I expect, this will reduce our cost by a little more than 15%.
NEXT STEPS
As of this moment, we have a loss in the stock and a somewhat smaller (but seemingly growing) profit in the options.
Thoughts/FACTS/Opinions on Assure Holdings
The company has a money problem. A local bank declared Assure in default on $4.1 million of its $6.5 million facility due to write-offs. Management believed the bank had approved the write-downs. Before the default, the bank's CEO, Scott Page, had sat on Assure's board. The bank has not called its loan. Perhaps it had not thought through the implications of reporting negative revenue as a result of the write-offs.
Assure is in the Neuromonitoring business. This business is commonly known as IONM or IOM (Inter Operative Neuro Monitoring.) IONM provides brain and spine surgeons with live neuromonitoring information with changes relayed directly to surgeons by a trained person. The research group Industry ARC says the North American IONM industry generated about $1.4B in 2019 revenue and expects the world market to grow by 7% annually through 2025.
I have paid attention Assure since 2017 when it was raising capital. My initial reaction was that it was a bad situation. In late 2018 the company began to augment and replace senior management.
Today, Assure's strategy and execution seem eminently rational. Revenues more than doubled in 2019, and management expects more than 50% growth in 2020. This growth comes in the face of pandemic limited elective surgeries. Earlier this month, the company announced a new record for monthly procedures in September.
Trent Carman, CFO, and Paul Webster, VP of Managed Care, came from Air Methods. There he and his team built a company that generated more than a billion in revenue and market value by rolling up flight-for-life services. Trent, Paul, and others know how to sign, implement, and transition hundreds of millions of out-of-network revenue to in-network revenue. Other Assure Holdings managers I have met seem experienced and focused on their job and strategy.
Assure has been getting its services accepted and scheduled by insurers with defined payment terms and timeline. Today about 20% of Assure's commercial insurance revenues are from insurance schedules that define payments and timing
The triggering events for the write-down are:
Its former collector had only pursued low hanging fruit and ignored the bulk of past service claims. Collections are now done in-house.
Some of the write-downs were also due to adjusting prior claims when negotiating new insurance schedules.
I expect new receivables to be collected, reserved, and reported more appropriately.