This Canadian pharma company is forecasted to grow 111.5% next year.
Medexus Pharmaceuticals Inc. (MDP.V/MEDXF)
From Cabot Micro-Insider
The reason that I love investing in micro caps so much is because you can find growth companies trading at value prices. To buy a fast-growing large-cap stock, you have to pay up. Instead of paying 15x earnings, you have to pay 30x earnings, or if it’s a tech company, 30x sales. In the micro-cap world, it’s possible to find tiny companies growing at 40% per year trading at just 10x earnings.
Let me introduce you to Medexus Pharma. Medexus Pharma is a Canadian specialty pharma company that is growing at a rapid clip. Its drugs treat chronic conditions, and as a result, its business had limited headwinds from COVID-19.
In March 2020, it completed a transformative acquisition of a drug call XINITY, which treats hemophilia. The transaction was transformative because Medexus acquired all the gross profits that the drug generates but only had to hire a few additional employees to support it. As a result, Medexus instantly transformed from a break-even company to a wildly profitable one.
Revenue is growing at 44% per year, and the company is on pace to generate $8 million of free cash flow. As such, the stock is trading at 11.6x free cash flow, an incredibly cheap valuation for a rapidly growing company. On an EV/Revenue basis, MEDXF trades at 1.1x while slower-growing peers trade at 3.6x.
When cheap, fast-growing micro caps get discovered by larger institutional investors, it’s very easy to get multi-baggers. If Medexus traded in line with peers, it would be a $15 stock, implying almost 200% upside from its current price.
Rich Howe, Cabot Micro-Insider, cabotwealth.com, 978-745-5532, January 6, 2021