Until they get to a much bigger size, it will be hard to predict EPS quarter to quarter. I would not commit too much of my investment portfolio to this penny stock. You should all note that the many of big players in the business have reported higher than expected medical expense ratio in the 4Q. They can absorb it over an extended time, while it is not clear about MDF being able to absorb bad results for an extended time.
What MDF needs to do with $20M in cash? (I think that is a million dollar question)
I'll give an example which hopefully relevant to MDF situation.
------------------------------------------- Here is the answer from Warren Buffett during 2006 annual shareholder meeting Q&A session when a shareholder from Des Moines said that he has a "two year rule" for his closet and "If I haven't worn a pair of pants in two uears it goes to Goodwill" How about Berkshire $40B in cash?
Answer from Warren: "It won't go to goodwill, I can assure you". I don't think we will hot home run under any circumstances. We need about $10 billion because of our insurance operations-we don't scrape the bottom of the barrel. We have a low probability idea that could take $15 billiob. Business opportunities comes in intervals. We don't like having excess cash . but we like even less doing dumb deals. you are right to keep jabbing us on that.
Answer from Munger: If you go back to Berkshire annual report of 10 years ago and compare it today, you'll see that we have put a lot of good stuff in the company. ----------------------------------------------
I haven't calculate how much exactly MDF should have in cash at all times (as a reserve) at their current business size but I'm guessing it will be at least $10M which is about 6% of one year revenue. 6% (or more depending on the quality of the asset or loan) is usually what the financial institution need to reserve (in equity/liquid equity). I don't know what is the rate or method for HMO company in calculating reserves. I tried to calculate what HUM number looks like and they are at about 7% revenue (after reducing the cash to offset the account payable since their account receivable is so much smaller than the account payable)
whether it is buy back , dividend or acquire more practices or expand to more counties, no one know for sure which one will give the best return, but if opportunity exist , I will want them to invest the money to grow the business (acquire or expand to more counties). I don't prefer them to pay dividend or buy back stocks. I still remember when they sold 5M shares to get $3M a couple years ago to get out of the tax default issue with the IRS, and buying back 5M shares today will take $13-$14M. I know the past is the past and if $2.7 is a good value today then it still make sense to buy back. In the mean time (while waiting for opportunities) they can keep the cash in reserve to make sure when they are in cash crunch they will not need to dilute shareholder at a ridiculous price. Plus they should be able to get 4-5% interest in the short term investment (like money market account) nowadays...
CNU take a risk and spend most of their $8M in cash to pay the debt that they incurred during the last acquisition and bring down the cash to $1M. I think that is risky but it can be good if in the next 1-2 years there is nothing wrong with the business and industry , they can use the cash flows to build the reserve back.
Anyhow.. it's a good problem to have.. on what to do with the excess cash.. versus.. being short of cash and need to raise money to pay obligation....