Reader pick: Primedex (PMDX.OB)
I recently caught up with reader Phil G., who first suggested that I take a look at Advocat Inc. (AVCA) when it was trading for $4 and change. What is he interested in now? A small but quickly growing medical imaging company called Primedex Health Systems (PMDX.OB).
Primedex provides diagnostic imaging services (PET, MRI, Open MRI, ultrasound, x-ray and CT scanning) through a network of fully-owned and operated outpatient imaging centers. PMDX operates clusters of centers within specific regions and cuts deals with HMO’s, PPO’s and other managed care providers. These deals ensure Primedex centers a steady flow of customers, even if they do pay lower negotiated rates.
Primedex intends to roll-up this fragmented industry. Last quarter it acquired four more imaging centers, but the big leap will come next year when it closes a deal to acquire publicly-traded Radiologix (RGX). The deal will be financed with a $405 million senior debt facility provided by GE Healthcare Financial Services, a division of General Electric (GE). Phil notes that GE also manufactures a wide array of medical imaging devices and that this financing may be a strategic move for GE aimed to ensure a leading position for GE’s medical imaging line.
Primedex is not yet profitable, but I expect investors will focus more on EBITDA growth and ratios as the company grows. For the last nine months, Primedex posted EBITDA of over $25 million, but lost $1.3 million after charges relating to debt extinguishment and the GE financing. Revenue for last quarter was over $40 million, giving PMDX a reasonable 0.65 price-to-sales ratio at current run rates.
My take: I like the Primedex story, but think that there will be a better entry point. The stock looks ripe for a pullback after its recent run. In all fairness to Phil, he first mentioned this stock to me at around $1.50, which would have been a great entry point.
DISCLOSURE: I have no position in PMDX.OB, RGX or GE. I am long AVCA. Not a recommendation to buy or sell any security. For informational and educational purposes only.
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