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If You Own CRH Medical Corp (CRHM) Stock, Should You Sell It Now?

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Alex Smith
·4 min read
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Greystone Capital recently released its Q4 2020 Investor Letter, a copy of which you can download here. Greystone is a privately held investment company. The investment firm seeks to simplify and add value by identifying opportunities in good and bad markets. During the fourth quarter of 2020, returns for separate accounts managed by Greystone Capital ranged from +28.0% to +57.2%. The median account return was +49.1%. You should check out Greystone Capital's top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.

In the Q4 2020 Investor Letter, Greystone Capital highlighted a few stocks and CRH Medical Corp (NYSE:CRHM) is one of them. CRH Medical Corp (NYSE:CRHM) is a healthcare products and services company. In the last three months, CRH Medical Corp (NYSE:CRHM) stock gained 4.2% and on January 19th it had a closing price of $2.26. Here is what Greystone Capital said:

"During the quarter I sold client positions in long-time holding CRH Medical following the announcement that they lost their largest service contract with United Digestive, representing over 20% of Adjusted shareholder EBITDA. While the effect of the contract loss won’t show up in the company’s financials until 2022, this news, combined with the already rough 2020 due to COVID forced me to re-evaluate the risk/reward and potential upside of the business.

Having become familiar with the business over the years and watching management grow the company through accretive M&A, I was comfortable managing the holding (and even adding to it) during the pandemic. However the loss of a large service contract is not as ‘solvable’ an issue as people eventually returning to their GI doc post-COVID, which opens the business up to continued decreases in revenues and profitability. CRH has some nasty reverse operating leverage given small declines in revenues, and this dynamic may be likely to continue into the foreseeable future. While some excess liquidity including a PPP loan helped get them through the year, I don’t believe I’d be willing to sacrifice another year of poor results when there are much better investments available to us.

While I’ve been burned by customer concentration before, I tried to zoom out and assess the situation rationally which still brought me to the same conclusion. I would find it very difficult for CRHM to return to their highly free cash flow generative state without replacing that contract very soon, and combined with potential reimbursement rate uncertainty and potential GI practice consolidation or a shift in postCOVID business practices, my view of the future became a lot less clear. I will continue to follow their progress and revisit the opportunity should it become attractive again."

Top General Surgery Residency Programs in US
Top General Surgery Residency Programs in US

Pixabay/Public Domain

In Q3 2020, the number of bullish hedge fund positions on CRH Medical Corp (NYSE:CRHM) stock decreased by about 14% from the previous quarter (see the chart here), so a number of other hedge fund managers don't believe in CRHM's growth potential. Our calculations showed that CRH Medical Corp (NYSE:CRHM) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.