CRH Medical Corp. (TSX:CRH) is another example of an increasingly highly-publicized “growth gem” in the healthcare space, funding its growth primarily through acquisitions of other small anesthesia and gastrointestinal businesses throughout North America.
Business is booming, and attacking market share has been the name of the game for CRH of late. As the company’s acquisition totals have continued to climb, top and bottom line numbers have continued to increase accordingly, with investors bidding the company’s stock price up above $12 this past month. At its peak just a couple weeks ago, the company had seen an increase in its market capitalization of over 40% since the beginning of the year, and over 300% since the beginning of 2016 – truly an amazing run.
Since the stock peaked, the company’s stock price has slid down 36% over just the past two weeks, with the slide beginning a mere one day after one of the company’s directors announced he would be selling more than $5.5 million worth of the company’s stock.
The subsequent earnings release a few days after the market learned of the large insider transaction highlighted a material change in how the company’s earnings are distributed. From only a year earlier, the company has shifted its earnings distributions from nearly entirely toward shareholders, to its current state where shareholders receive less than half of the earnings generated by the consolidated company.
The acquisition model has simply increased CRH’s gross numbers, but appears to have hurt what really matters: value creation for shareholders. I remain very skeptical of this company’s ability to turn the ship around and generate long-term value for shareholders, given the trend of deteriorating shareholder returns as a percentage of the overall business.
