CRH Medical Corp (CRH)- Came back with a vengeance 4

What a day for CRH Medical Corp.

Not sure if you remember but I always ask this question before I put my hard earned money to work. “Can I sleep well if I buy that stock XX”

I need to sleep well when it comes to investing and only way to make it happen is to invest in superb companies with great fundamentals that are managed by relatively ethical CEOs with high insider ownership that are great at allocating capitals.

But you may know that I like to have fun. My thrill seeking instinct has to be somehow satisfied otherwise I will probably bored to death. I gotta have fun. So I assign very small portion of my portfolio (less than $5K) in gambling.

When it comes to gambling I have a few rules.

  • Current and future (free) cash flow of underlying business should be positive and hopefully growing
  • Low debt
  • Invest limit- $5K.
  • Do not ignore extreme hype so use it when you can (Remember bitcoins and weed stocks?)

Today’s pleasant surprise came from CRH Medical Corp.

CRH has been on my watch list for a while. You know… CRH has never fully satisfied me but I was still interested in the company and its growth perspective. So when CMS coding change (regulations) was announced and due to its negative impacts on the business, CRH crashed down badly, I watched at the sideline. From all time high of $12.35 to all time low of $1.86 losing more than 85% of its value within 6 months or so was actually quite fun to watch.

and my gambling radar started ringing then I bottom fished this perfectly about 4 months ago or so by pure luck.

then CRH released its blow out quarter and it went up by 13% bringing my unrealized gain at exactly 100%. Yay!

I was skeptical and I still am because the CEO sold his shares at $12 or so before crashing it down. (It would be fair to ask whether he knew about it or not but who cares, because of its crash, I was able to profit off of it.)  I also did not like the fact that there is not substantial ownership from management and they have issued options like papers. You know I do not like dilution, especially free dilution such as management options which is the worst of all dilution.

I concluded that the stock got crashed not because of its poor management of business or fundamental deterioration but mostly regulation. (keep in mind change of regulations could easily kill companies so I am often more cautious when I invest in medical related companies or any companies that are easily swayed by regulations). 

But I liked the fact that the sentiment basically killed the stock so badly. I also liked that the business generated tones of free cash flows. It was quite cheap. I won’t talk about their quarters other than posting the news release below but they did a great job. Revenue up, EBITDA up, adjusted EBITDA up and most importantly, solid cash flow, stock repurchases etc…

CRH news release

If you ask me whether CRH should ever be one of my core holdings then I can confidently say No.

I will never put CRH as same league as my core holdings but it is an interesting pick that could go further up next little while.

What am I going to do with CRH?

I may sell half of the position to recoup my original investment and leave the rest until fundamentals deteriorate or let the whole thing run little further as sentiment seems to be turning positive due to its blow out quarter and it takes time for asset managers to notice and start to pile in their money. Shorts may get squeezed hard once asset managers pile in and that’s when price explosions occur. Not sure whether that’s going to happen but let’s see.

Were there any gambles that did not pay off?

Yes. there has been once and that costed me some money (hint- an infamous Canadian pharma company) You know why? because I ignored cash flow and low debt criteria. I learned my lesson after losing some money.

There is a perfect Korean saying for this. “Mending the barn after the cow is stolen”

I know. I should have prevented losing money at the first place but at least I mend the barn after my cow was stolen.

You may have an issue if you lost money but still not learned your lessons.

Don’t forget to make sure that the underlying companies generate positive free cash flows when you try to bottom fish any stocks that crashed down.

Oh man, just talking about gambling makes me quite excited. I understand why there are so many gamblers (day traders). The thrill was real when your bet paid off even though I wagered very little.

Happy hunting everyone!

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4 thoughts on “CRH Medical Corp (CRH)- Came back with a vengeance

  • Brad

    Hey BSR, well done on timing that bottom. You’ll recall I was reassuring you that it was a good time to buy CRH since it was overly beaten up. I still hold a largish position and did very well with it this week. I would not recommend selling just yet. Mgmt has stated that acquisitions will make up for the rate cuts. They have not done any acquisitions yet in 2018 and they have assured shareholders that they are keeping on track with 2016/2017 acquisitions, so we have about $30M worth coming. Last years acquisitions added $9.5M in revenues. Historically they haven’t done acquisitions in q1 so I feel we should have one coming in April/May and more to follow all year. This will drive up the share price and add to the companies already rich cash flow stream. If I were to recommend a time to sell your position it would be following the last acquisitions for 2018, when the share price should be in the $6 range.

    • Be Smart Rich Post author

      Hey Brad! I certainly recall your opinions on CRH and that certainly helped me to execute the bet. Thanks for that! It was certainly beaten up at the time for sure. I agree that this is still cheap. 🙂 I have not sold any yet as I want to juice it out a bit longer. I will eventually sell it off completely though.

      May I ask what your core holdings are and what you are closely watching lately? 🙂