R1 RCM: A Company Trump That Would Think Is Great
Technology, specifically small-cap growth stocks, are in vogue again as traders flock to the risk-on trade since the correction in early February. A small-cap technology growth stock that has been lighting it up on the chart is R1 RCM Inc (NASDAQ:RCM).
The name on its own may sound odd, but R1 RCM stock is the kind of technology healthcare company that President Donald Trump could favor.
R1 RCM provides revenue cycle management solutions that help lower healthcare costs and improve the revenue picture of hospitals and healthcare providers while giving patients a better experience.
R1 RCM stock has been sizzling on the chart, up 92% this year and 134% over the past year.
While the stock may have moved too high too fast and could be vulnerable to overbought selling, the company is set to deliver some strong growth.
Consider that R1 RCM stock is still well below its $13.54 price in January 2013 and its $32.82 price in August 2011.
Chart courtesy of StockCharts.com
The stock price is hovering above its 50-day moving average and recorded a breakout at around $4.00 on a bullish ascending triangle.
There is no guarantee that R1 RCM stock can recover its previous high points, but the business has high prospects, given the state of the healthcare sector.
My Bullish Case for RCM Stock
The revenue table below displays the lack of consistency at R1 RCM, with 2016 being the only year of growth.
|Year||Revenue ($ Millions)||Growth|
But there are some encouraging signs that things are improving for the company.
Revenues are slated to surge by 93.3% to $869.39 million this year, followed by 22.9% growth to $1.07 billion. (Source: “R1 RCM Inc. (RCM),” Yahoo! Finance, last accessed May 17, 2018.)
The fact that revenues could soon eclipse the $1.0-billion level is impressive, considering the current market cap of about $912.4 million. This implies that RCM is trading at less than forward revenues.
Profits have escaped R1 RCM, but that could soon change. Estimates call for the company to earn $0.13 per diluted share in 2019, with a high estimate of $0.23 per diluted share.
The company’s free cash flow (FCF) has been negative in the past four years, but its loss in 2017 was the lowest since it had a positive FCF in 2013.
|Year||Free Cash Flow ($ Millions)|
I expect the company’s FCF to turn positive this year as R1 RCM moves toward being a profitable enterprise.
My view is that the future looks promising for R1 RCM, especially as healthcare participants and hospitals work on becoming more efficient.
The bull story is in place. RCM stock may have gotten ahead of itself, but the potential for longer-term investors is promising, especially if the stock price dips to more reasonable levels.