Echelon Wealth Partners has named Profound Medical (TSX:PRN; OTCQX:PRFMF) as a Top Pick with a “buy” rating and $3 price target. The stock closed at 60 cents on Oct. 10.
Commenting on Profound’s share price softness in recent trading session, analyst Doug Loe wrote, “we believe softness is driven more by the firm’s stage of business evolution than of any core technological fundamentals related to lead ultrasound ablation platforms: TULSA-PRO and Sonalleve MR-HIFU.”
He suggested that the company’s shelf prospectus filed in early September might have instilled some caution into capital markets.
“While it is certainly possible that Profound may wish to augment global sales and marketing infrastructure if/when TULSA-PRO is FDA-approved (it is already CE Marked in Europe) or if Sonalleve MR-HIFU achieves the same (it is already sFDA-approved in China), we suspect the firm may also be catering to the possibility that it may wish to consummate strategic acquisitions (presumably in the tissue ablation space) with equity capital, and having a shelf prospectus already filed certainly facilitates that process once triggered,” Mr. Loe added.
In addition, he said a valuation speed bump caused by transitioning between device development and device commercialization, and transitioning between event-driven value creation and revenue/EBITDA-driven value creation, is one that medical technology developers frequently encounter. “We see no reason why Profound cannot successfully navigate the transition,” he added.
Mr. Loe said a successful navigation by Profound is well supported by clinical data already available for both TULSA-PRO and Sonalleve MR-HIFU, and both MR-guided ultrasound tissue ablation devices contribute materially to his revenue/EBITDA forecasts.
“We remind investors that Profound provided commentary in its second quarter 2018 MD&A suggesting that second half revenue will be better than the first half, and share price directionality is clearly not consistent with that dynamic if/when it emerges in actual second half financial data,” he added.
