We last covered ISW Holdings Inc (OTCMKTS:ISWH) three weeks ago, noting at the time that it was poised as a hugely undervalued healthcare growth stock with big upside potential based on corporate performance, growth trends, and its recently announced multi-state expansion.
Now, here we are, three weeks later, and 150% higher, and we would make virtually the same argument: The stock still looks woefully underpriced given the company’s fundamental trends, particularly as it represents one of the few places investors are going to find extremely strong growth both during and after the coronavirus pandemic outbreak. In other words, ISWH is underpriced in its own right, but also may see capital flows from small and micro-cap investors as a relative value play as earnings performance for most of the market falls apart under the weight of the COVID-19 sudden-stop economic crisis we are seeing in the US and around the world.
The Quantitative Case
ISW Holdings Inc (OTCMKTS:ISWH) bills itself as a global brand management holdings company with diverse operational interests. Lately, the company’s home healthcare services segment has been its critical growth driver, powering breakout numbers for three consecutive quarters to close out 2019. And the company’s most recent communications suggest that streak will grow to at least five consecutive quarters with accelerating double-digit percentage growth on a sequential quarterly basis, which is extremely rare.
The latest Earnings Trends report from Zack’s Research indicates that earnings for the Medical sector are expected to have gained 1.9% in first-quarter 2020, on revenue rise of 8.1%. That is likely to be the strongest sector in the market for Q1.
According to the most recent release from ISWH, “for the year ended December 31, 2019, ISW Holdings posted revenues of $527,151. Management notes that these results were achieved on accelerating sequential quarterly growth, with nearly half of those revenues appearing in Q4. Sequential growth in Q3 (versus Q2) was 26%. Sequential growth in Q4 (versus Q3) was 29%. The Company projects Sequential growth in Q1 2020 to come in at a new record level significantly outpacing Q4 2019 results.”
In other words, ISWH will probably post growth about four times as powerful as the overall healthcare sector in Q1, which is likely to end up as the strongest sector overall during the Q1 reporting season. Provided the trends powering the company’s growth remain intact over the next four quarters, the stock is now trading at about 0.5x forward sales, which makes it extremely cheap by any standard – and that’s after 150% in share price gains over the past few weeks.
Oh And By the Way…
To really extend this argument, we would point out that the above case has been made without any reference to the company’s current expansion, as announced in March.
“We are receiving a flood of calls every day as hospitals prepare for overwhelming circumstances,” commented Alonzo Pierce, President of ISWH, in the company’s March 25 release. “We are waiting for final regulatory approval, and then we will aggressively launch services in Nevada, New Mexico, Arizona, and Florida, to accompany our current growing operations in Texas.”
In line with this logic, the company has noted that it is already taking on additional clients in the Houston, San Antonio, and El Paso service areas, but that it has also begun the process of expanding outside of Texas.
This isn’t just about COVID-19. According to a recent report from Business Insider Intelligence, the US home healthcare market is projected to grow from $103 billion in 2018 to $173 billion by 2026 — outpacing growth in all other care types, including hospital care (+5.3% annually) and physician services (+5.6% annually). In other words, this is a big and growing market expansion that likely has some legs.
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