Pacific Health Care Organization (PFHO, Financial)
PFHO reported earnings last week. Things to note:
- Revenues fell 13.1% year over year.
- Net income fell 14%
More importantly, as I mentioned in the original post, the costs are very variable because costs for the segments that those two clients were concentrated in are outsourced. The company shed the costs under that by 38% and was able to keep net margins in-line with sales.
A look at the updated balance sheet above shows a cash balance of $3.8 million and accounts receivable of $1.04 million. If we take the rest of the current assets at face value and then assume that the rest of the assets (long-term) are worth nothing, then the hypothetical book value comes out to $5.222 - $0.385 = $4.835
The liquidation value comes out to $4.835(Book value) - 8.24 million (market cap) = -$3.41 million
Now, since part of the AmTrust revenues were shed in the fourth quarter, shedding the total 2015 net income in half is conservative since we'll be double counting part of the removal of AmTrust. Last year's net income of $1.677 million/2 = $838,500.
The company now trades at $3.41 million/$838,500 = 4.06x earnings. Now, I don't want to speculate on what revenues will be next quarter, I'll leave it to the real analysts to do that. I no longer use financial models, but you do not need Excel to tell you that this thing is a steal, even at $10 per share.
I'm moving the price target from $11.76 to $14 per share. This still makes up just over 5% of the portfolio. Let's hope for a stellar first quarter.
