Drug stores provide essential health-related products and services, such as prescription drugs, medical equipment, and over-the-counter drugs. The products and services provided by drug stores are essential, making them considerably less affected by a recession.
However, not all drug stores are worth investing in. In this piece, I have discussed why MedAvail Holdings, Inc. (MDVL) is best avoided now.
MDVL’s revenue and EPS surpassed analyst estimates in the fourth quarter. Its EPS came 9.7% above the consensus estimate, while its revenue beat analyst estimates by 3.2%.
Earlier in January, MDVL said that it was restructuring its organization to focus on its pharmacy technology business and exit its pharmacy services and SpotRx business. The strategic restructuring and reprioritization of business aim to deliver profitability by reducing headcount and cash burn.
The company said that it aims to reduce its staff by approximately 75%, which is expected to lead to annualized operating expense savings of $35 million to $37 million. Annual cash burn is expected to reduce by more than 65% in 2023.
MDVL’s CEO Mark Doerr said, “Facing with a challenging capital market environment and need to preserve cash, we felt it was important to refocus the business on our core value proposition in technology and to accelerate our path to profitability.”
On January 26, 2023, MDVL announced its entrance into a definitive agreement with CVS Pharmacy to sell certain assets of its SpotRx pharmacies. A portion of the sale proceeds from the transaction will be used to pay the company’s existing loan facility, which carries a remaining debt balance of approximately $2.5 million.
On March 13, 2023, MDVL closed a private placement of securities with certain institutional investors according to the terms of a definitive securities purchase agreement dated March 9, 2023. Before deducting offering expenses, MDVL received gross proceeds of approximately $16 million.
The proceeds from this offering will be used to fund one-time costs linked to the previously announced restructuring, repay outstanding debt, and finance its growth initiatives.
For fiscal 2023, MDVL expects stand-alone technology revenue to be approximately $3 million, representing a more than 100% growth over last year. Its gross margins are expected to be higher than 60%. The company expects to place an additional 25 net new dispensing MedCenters this year.
Doerr said, “With our recently completed financing, we have a strengthened balance sheet that we believe will support our pharmacy technology growth initiatives, intended to allow us to progress toward profitability without the need for an additional equity capital raise.”
“I am optimistic for what we can achieve as a company this year, and I believe we have created a foundation from which to drive strong, profitable growth over long term, to the benefit of our partners, patients, and shareholders,” he added.
MDVL’s stock has declined 83.5% in price over the past nine months and 90.2% over the past year to close the last trading session at $0.1880.
Here’s what could influence MDVL’s performance in the upcoming months:
Disappointing Financials
MDVL’s operating loss narrowed 13.1% year-over-year to $10.74 million for the fourth quarter ended December 31, 2022. Its net loss and comprehensive loss narrowed 12.3% year-over-year to $11.07 million. The company’s loss per share narrowed 63.2% year-over-year to $0.14. In addition, its adjusted EBITDA loss narrowed 20.1% year-over-year to $8.72 million.
For the fiscal year ended December 31, 2022, MDVL’s operating loss widened 6.7% year-over-year to $46.42 million. Its net loss and comprehensive loss widened 8.7% year-over-year to $47.62 million. The company’s loss per share narrowed 46.3% year-over-year to $0.72. In addition, its adjusted EBITDA loss widened 1.2% year-over-year to $40.13 million.
Unfavorable Analyst Estimates
Analysts expect MDVL’s EPS for fiscal 2023 and 2024 to remain negative. Its revenue for fiscal 2023 is expected to decline 10.9% year-over-year to $38.43 million. Its EPS for the quarter ended March 31, 2023, is expected to remain negative. Its revenue for the same quarter is expected to decline 11.8% year-over-year to $8.04 million.
Poor Profitability
MDVL’s 4.99% trailing-12-month gross profit margin is 84.2% lower than the 31.55% industry average. Likewise, its trailing-12-month EBIT margin is negative 107.69% compared to the 7.64% industry average. Furthermore, the stock’s negative 72.42% trailing-12-month levered FCF margin compares to the industry average of 2.69%.
POWR Ratings Reflect Bleak Prospects
MDVL has an overall D rating, equating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MDVL has an F grade for Quality, in sync with its poor profitability.
MDVL is ranked last out of 5 stocks in the Medical – Drug Stores industry. Click here to access MDVL’s Growth, Value, Momentum, Stability, and Sentiment ratings.
Bottom Line
MDVL’s stock is trading below its 50-day and 200-day moving averages of $0.29 and $0.61, respectively, indicating a downtrend. In its bid to achieve profitability, the company is trying to reduce cash burn by reducing its workforce and by focusing on its pharmacy technology business. However, MDVL is still some time away from achieving profitability.
Given its disappointing financials, unfavorable analyst estimates, and poor profitability, it could be wise to avoid the stock now.
Stocks to Consider Instead of MedAvail Holdings, Inc. (MDVL)
The odds of MDVL outperforming in the weeks and months ahead are significantly compromised. However, there are many medical stocks with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) or B-rated (Buy) stocks from the Medical – Consumer Goods industry instead:
Nature's Sunshine Products, Inc. (NATR)
LifeVantage Corporation (LFVN)
Zynex, Inc. (ZYXI)
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MDVL shares were trading at $0.19 per share on Friday afternoon, down $0.00 (-0.05%). Year-to-date, MDVL has declined -36.62%, versus a 8.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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