WHITEFISH, MT / ACCESSWIRE / May 7, 2015 / Wall Street is chock full of metrics for valuing any given company, including price-to-earnings ratio, price-to-sales ratio, price/earnings to growth (PEG) ratio and so on. With the markets pressing yet again on record highs and earnings season in swing, revenue and profits are being closely scrutinized in a bid to determine if companies are fairly, under or over valued. Looking to the healthcare sector, Oculus Innovative Sciences Inc. (NASDAQ: OCLS) looks aligned for growth and valued beneath peers by most traditional metrics as the company executes on its operational plan and teams with a bigger player.
Value investors are culling through reports of energy and mining companies as well, looking for inspiration against the backdrop of oil and gold prices far from highs. In the energy space, finding the value for some is a result of looking at consensus estimates of future performance as compared to current value, which highlights companies like Paragon Offshore (NYSE: PGN) or a technical setup for a beaten-down stock such as CHC Group Ltd. (NYSE: HELI) for turnaround potential.
Oculus Innovative Sciences
Oculus Innovative Sciences is a specialty pharmaceutical company focused on advanced tissue care and dermatological conditions. Big pharma has been moving into the growing dermatology market, including Nestle SA (OTC: NSRGY) forming Nestlé Skin Health SA and investing $5 billion in 2014 for full ownership of the skin-revival business Galderma and North American rights for anti-wrinkle treatments Restylane, Perlane, Emervel and Dysport and aesthetic medication Sculptra.
Oculus sells its family of products, which are built upon its patented method of producing stable hypochlorous acid branded "Microcyn" Technology, throughout the U.S. and internationally. The Microcyn Technology has been proven successful in more than 30 human clinical trials, is protected by more than 45 patents, has 10 FDA clearances, 10 CE marks and has been used to improve outcomes for over 5 million people.
The company has made fundamental changes to its operations to support future growth that have been masked to a certain extent by relatively flat headline figures. More specifically, Oculus launched a new dermatology division, IntraDerm Pharmaceuticals, for sales of products in the U.S. and abroad. The first products IntraDerm is selling are Alevicyn(TM) Antipruritic Gel for the management of itch, pain and burning associated with various dermatoses, including atopic and radiation dermatitis; and Alevicyn(TM) Dermal Spray for the management of surgical wounds, for procedures completed by dermatologist including skin cancer removal. These products were introduced to the market late last year.
In addition to other products in the franchise, Oculus has recently added Celacyn as the only prescription scar management product on the market. The FDA and European approvals of Celacyn followed a successful clinical study showing Celacyn to outperform controls receiving a silicone-based scar product. According to pharmaceutical sales databases for the month of March, Oculus' derm division is selling Alevicyn (NDC# 02670-001-02) and Celacyn (NDC# 02670-001-40) at a quarterly rate of 5,300 units and growing, exceeding the company's forecasted sales ramp.
Oculus has also rebuilt its animal healthcare business by slowly terminating its legacy relationships, which limited the company's control and profitability, and re-launching a new division with more favorable distribution terms and room for greater market penetration and customer retention. Oculus’ kicked-off this new business segment in February via a partnership with well known pet specialty sales and marketing group SLA Brands and commercialization of nine new MicrocynAH(R) advanced all-animal healthcare products in the U.S. and Canadian markets. Oculus says it plans to expand into the European markets this summer with the new MicrocynAH(R) products, which currently include wound and skin care liquids and hydrogels and all-animal ophthalmic gel. Adding to the offerings, Oculus last month introduced two new animal healthcare products, MicrocynAH(R) Farm and Ranch Spray and the MicrocynAH(R) Farm and Ranch Hydrogel, intended for care of traumatic wounds, cuts abrasions, skin irritations, skin ulcers, post-surgical incisions, burns, scratches, rashes and irritated skin.
According to the industry market research firm Freedonia Group, the demand for animal health products in the U.S. alone is forecast to increase 3.9% annually to $12.7 billion in 2016. With the new partnership with SLA Brands, Oculus is in a better position for capturing market share.
Over the last year Oculus' quarterly revenue has remained about the same. However, with the unwinding of its previous animal health business model, sales were only $136,000 in the recent quarter, subtracting $554,000 in sales from that segment from a year earlier. This was mostly offset by a $457,000 increase in sales in international markets (to $2.2 million) of Oculus' products. Oculus now has a stronger North American sales team in its control and has re-launched it new animal healthcare business. With almost no sales in animal health from the company's former partner, quarterly revenue seems primed for quarter-over-quarter growth, based on 1) US sales increases from Oculus' direct sales force and new animal division and 2) continued strong international revenue growth as discussed below.
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On the derm side, new products are on the market and, importantly, Oculus has a more formidable partner south of the U.S. border, where sales already were growing for Oculus. In the recent quarter, dollar sales in Mexico were up 18%, while product revenue growth in pesos increased 32%. In January the company's former partner, More Pharma, was acquired by Laboratorios Sanfer SA, the largest Mexican private market pharmaceutical company by sales and the third largest by volume. This is significant for Oculus as More Pharma only sold product in Mexico, whereas Sanfer, a company rumored last year to be preparing a U.S. IPO, focuses on sales and marketing throughout all of Latin America. Sanfer has about 1,800 sales reps, versus about 200 for More, which should intensify exposure of Microcyn products. Further, Sanfer has a sales force for Over-the-Counter products in the pharmacy, a public and private hospital sales force, a dermatology line, an oral line, an animal health care line and a wide antibiotic product line.
Fundamentally, Oculus is on solid footing. For starters, the company carried only $6,000 in debt, effectively nil, at the end of 2014. The spin out of its surgical drug business with the 2014 IPO of Ruthigen (NASDAQ: RUTH) has delivered benefits to Oculus in a number of ways. Financially, Oculus has agreed to divest its holdings in Ruthigen upon the completion of the merger of Ruthigen and Pulmatrix for proceeds of approximately $5.5 million. Operationally, Oculus reconstituted its board with the spin out to include individuals with strong backgrounds in sales, marketing and dermatology. Subsequently, Oculus took a more inside approach to sales of its Microcyn-based products and hired 20 direct sales people and nine sales staff and placed them across the U.S. based upon IMS data targeting heavy physician prescription writers.
Looking at the $10.7 million market capitalization of Oculus as far as a fair valuation of Oculus can be done a couple ways. One, the company's trailing twelve month revenue is $12.8 million, according to data on Yahoo Finance, meaning that the company's sales are almost 20% higher than its valuation. There's no debt, yet the enterprise value of Oculus is a meager $8.5 million. Another way to look at the valuation is to consider the current cash plus future cash. This is a little more complicated as the burn rate will chew through cash and the Ruthigen/Pulmatrix merger has to remain on track.
Purely looking at cash and future cash means adding together $2.24 million (cash the company had at the end of December) and $5.3 million (capital raise in January), $5.5 million (expected from divesting RTGN shares) to achieve a total of approximately $13 million. Again, that's a figure well above the current valuation of Oculus.
During the first nine months of fiscal 2015, Oculus' net EBITDAS loss was on average roughly $470,000 per month, equating to 27 months of cash and future cash with plenty of time to allow the sales channels to continue to expand, as they have been, especially with Sanfer now in the mix. It should be a sweet spot for Oculus as Mexican sales were about 48% of total product revenue for Oculus and grew about 17% in Q3. Internationally, Oculus is growing its footprint, with sales in Europe, Middle East and Asia growing 47% in Q3 to comprise about 25% of product revenue, inclusive of 100% growth in the Middle East, 25% growth in Europe and 11% growth in the Far East (not including China).
Despite the improvements across the business spectrum and strong financials, and considering the above discussion of the company's valuation, Oculus remains under the radar trading near an all-time low, in the 70 cents per share range.
Paragon Offshore
Shares of Paragon Offshore, which provides offshore drilling rigs, were trading around $9 each at the start of September, a time when oil prices were heading for a precipitous fall of more than 50%. Shares of PGN tumbled to a low of $1.05 in March, stripping Paragon of nearly 90% of its market capitalization. While the consensus estimate of six analysts on Yahoo Finance for earnings per share for next year isn't as rosy (consensus net loss estimated in 2016), analysts are calling for 2015 earnings of $0.55 per share for Paragon. At a current share price of $1.75, that’s a projected P/E ratio of 3.2:1. Even amongst depressed oil prices and with expectations of swinging to a loss in 2016, that's arguably a low ratio. Oil has rebounded recently as pundits speculate about cap ex and future oil prices, helping shares of PGN recover some of the losses, including a high of $2.19 last month. At $1.75 per share, Paragon Offshore commands an enterprise value of $2.25 billion and a market capitalization of $149.7 million.
CHC Group
CHC Group is a commercial helicopter service provider to the offshore oil and gas industry with a fleet of approximately 236 heavy and medium helicopters. The company also offers government search-and-rescue agencies, helicopter maintenance, repair and overhaul services to organizations through its Heli-One segment. HELI stock has had a tough go since its IPO in January 2014, falling from a high of $10.25 that month to as low as $1.07 last month, representing a decline of 89.6% in share value. This is a technical play – the stock chart made a "double bottom" pattern by touching a support at $1.09 in March and $1.07 in April – and a turnaround story as the company tries to work past the plunge in oil prices that is limiting investment in offshore drilling by optimizing its cost structure and improving capital efficiency. CHC is also dealing with a lawsuit related to a helicopter crash in 2012, although, as noted by CHC President and CEO Karl Fessenden in the latest earnings call, the company's "rolling five-year accident rate was 0.38 accidents for 100,000 flight hours…[that is] significantly better than the averages for all offshore operators and Twin Helicopters." The stock made a solid move on increased volume on May 5 as one of the best performing Russell 2000 members on that day. At $1.35 per share, CHC currently as an enterprise value of $1.15 billion and a market capitalization of $109.2 million.
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SOURCE: Emerging Growth LLC
