Sharps Compliance Corp.

SMED Details

Sharps Compliance Corp (NYSE: SMED) is a national leader in health waste management, specializing in regulated waste streams, medicines, and hazardous waste. It provides comprehensive medical waste management, hazardous waste management, and unused drug management solutions.

Latest News:

• Key Appointment: On February 28, 2022, Eric Bauer was named Executive Vice President and Chief Financial Officer of SMED. Mr. Bauer will be responsible for all areas of Sharps' finance and accounting organization and creating and implementing the Company's strategic objectives and mergers and acquisitions efforts in his new role. Mr. Bauer is a veteran finance and investment banking executive who served as Vice President and Chief Financial Officer of Nuverra Environmental Solutions (NYSE: NES), a provider of oilfield logistics and equipment in his prior role.

Q2FY22 Results:

• Growth in Topline: The company reported YoY growth of 10.98% in overall revenue to USD 18.88 million in Q2FY22 (ended December 31, 2021) compared to USD 17.01 million in Q2FY21, driven by higher product returns on prior period sales, net of current year deferred revenue, complemented by increased billings in the Professional and Retail segments.
• Improvement in Profitability: In Q2FY22, SMED's net income increased to USD 1.44 million from USD 1.23 million in Q2FY21.
• Cash and Debt Position: As of December 31, 2021, the company had cash & cash equivalents of USD 36.00 million and total debt of USD 4.65 million.

Key Risk:

• Customer Concentration Risk: SMED's top two customers contributed roughly 45% and 35% of total revenue and 36% and 44% of total accounts receivables in FY21 and FY20, respectively. In the long run, putting too much reliance on a small number of clients could hurt the company's operations.

 Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

SMED's stock price has fallen 56.71% in the past nine months and has made a new 52-week low today. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 6.86.

Considering the significant correction in stock price, reduction in leverage, industry above net-profit margins, management change, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 5.48, down 3.01%, as of March 08, 2022.

Three-Year Technical Price Chart (March 08, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.