Should You Exit This Small-Cap Healthcare Stock – SMED

Apr 08, 2022 12:00 AM PDT | Team Kalkine
Should You Exit This Small-Cap Healthcare Stock – SMED


Sharps Compliance Corp.

Sharps Compliance Corp (NYSE: SMED) is a national leader in health waste management focusing on regulated waste streams, medicines, and hazardous waste. It offers a full range of medical waste management, hazardous waste management, and unused drug disposal services.

Why Should Investors Make An Exit?

  • High Cash Conversion Days: Compared to the industry, the company has a long Cash Conversion Cycle (Days), meaning that it takes more days to convert its sales to cash. As of FY21, its Cash Cycle was 73 days, compared to an industry median of 30 days.
  • Customer Concentration Risk: SMED's top two customers contributed roughly 45% and 35% of total revenue and 36% and 44% of total accounts receivables in FY21 and FY20, respectively. In the long run, putting too much reliance on a small number of clients could hurt the company's operations.
  • Long-tern Bearishness: On daily price chart, SMED shares are forming a lower-top and lower bottom kind of price pattern since April 2021, a bearish trend. Moreover, the crucial long-term and short-term moving averages are falling, implies a steep bearishness in the stock.

Technical Price Chart (as of April 08, 2022, at 10:54 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

SMED's share price has declined 46.70% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 4.81 to USD 18.67. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 4.66.

Considering the company's long cash conversion cycle, current valuation and associated risks. we recommend a "Sell" rating on the stock at the current price of USD 5.255, up 1.06% as of April 08, 2022, at 08:31 AM PDT.              

Three-Year Technical Price Chart (as of April 08, 2022, at 08:31 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.