Doing a rudimentary analysis, I came up with a fair value on PCHM. Granted, it's my own, and should not be taken as a recommendation to buy or sell.
Price/Book, Price/Sales, Price/Earnings.
Comparable laboratory companies - LH/DGX/BRLI. This industry gets a 90% weighting for my analysis purposes.
Tweak it a tiny amount.
Price/Book, Price/Sales, Price/Earnings.
Two correction facility companies. This industry gets a 10% weighting for my analysis purposes.
This is how I came up with fair value of $0.46 today. But that's just ratios using comps. I wanted to dig a little deeper to see how PCHM is worth more than half a buck.
They successfully have shifted business models. The company has added over 120 new customers in two years. That's one new customer a week, every week, for 2 years. New accounts are the life blood of any company. With that customer growth comes sales growth and that leads to growth in earnings and retained earnings/equity. I'm not taking in to account new product offerings approved in 2014. From the tone of the letter and new customer engagements, growth is coming, I just don't know how much.
If you look at the earnings report within the 2014 Shareholder Letter, you will see very little in taxes paid for the past two years. So you have to do a little more digging. Go back to 2002 filing. There were NOL's through 2002 amounting to $10 million. There are guaranteed earnings enhancements by having these write-offs that are still ongoing today. Again, this is bottom line guaranteed improvement which ultimately trickles down and adds to the equity.
There are four full time employees. See Pinksheets/Otc Markets 2014 Company profile - updated in April! PCHM is a profits machine with so few full time employees. This is the fewest full time employees I've seen in my years here.
I noticed that SG&A was up from 2010 (I have older numbers). As stated by the letter, the presence at trade shows has increased with special emphasis on state and local drug courts/rehab institutions. There are training programs ongoing. This has been attributed to the increase in new customers and sales. But some of those expenses will not be recurring. The company has revamped all their marketing brochures and their website. I can see SG&A expense as a percent of sales staying the same or perhaps going lower. Maybe we see an increase in margins with some of these expenses not recurring.
Why not $2-$4 a share? It makes no sense for a company sale to take place under $1 a share. Cash and equity are growing every year.
