1 Digital Healthcare Stock To Avoid

Health services IT company TRxADE HEALTH, Inc. (NASDAQ:MEDS) played a vital role during the pandemic, making remote care and tests available to patients with its digital healthcare wing. While the effects of the pandemic are largely in the rearview mirror, TRxADE remains a prominent player in the pharmaceutical industry.

With its robust portfolio and network, the company is taking advantage of the increased digitalization taking place in retail healthcare. TRxADE is consistently growing in terms of acquisitions and business expansion strategies. Last year’s acquisition of food technology company Superlatus, Inc. has been a significant driver for the business, enabling the company to expand into the sustainable food products market.

TRxADE’s registered users increased 6.2% year over year for the third quarter of 2023 but for the nine months ended September 2023, new registrations were 196, reflecting a decline from 296 in the year-ago period.

While TRxADE is diversifying its business, it has yet to achieve consistent profit. Given its bottom-line weakness, can the stock maintain its uptrend even if it loses momentum?

Key Points

• Through strategic acquisitions, like Superlatus, Inc., TRxADE expanded into new markets, despite facing challenges in increasing its user base.
• Triggered by an asset sale and a special dividend announcement, TRxADE’s stock enjoyed a significant surge, reaching a 52-week high and showcasing investor confidence.
• Despite revenue streams, TRxADE reported increased net losses and operational costs, with a major asset sale seen as a move to recover profitability, which remains uncertain.

How Is the Stock Performing?

TRxADE stock had been on a skyrocketing rally, with its share price soaring like there’s no tomorrow. The stock had gained massive momentum following its asset sale announcement in mid-February.

Also, the share price saw a steep rise at the beginning of this month, driven by the company’s special dividend announcement. The company announced a special cash dividend of $8.00 per share of common stock, which it expects to pay from the asset sale proceeds.

TRxADE HEALTH and Micro Merchant Systems, Inc. (MMS) entered an agreement under which MMS will purchase most of the assets of MEDS’ wholly-owned Trxade, Inc., which operates its web-based marketplace. MMS will pay $22.5 million in cash for the assets. Moreover, TRxADE might also receive an additional $7.5 million if MMS receives $1.6 million or more from third parties through the operations of the acquired assets.

However, the company affirmed that it will continue to operate in the pharmaceutical industry through its subsidiary, Integra Pharma Solutions, LLC.

While the share price experienced weak momentum at the beginning of the year, it soared to hit a 52-week high of $44.56 per share on March 11 before plunging recently. Until then, the stock had returned over 380% over the past three months.

Why Did The Stock Plunge?

TRxADE’s business has not been as rosy as its recent stock price performance suggests. Prior to the asset sale agreement, TRxADE shares were on a downward spiral due to its disappointing financials. Despite its big moves in the pharma space, it is yet to generate profits due to high operating costs.

In addition, on November 21, 2023, the company announced that it received a notice of non-compliance from the Nasdaq Listing Qualifications Department because it failed to file its quarterly report on time.

In January 2024, the company filed its report on Form 10-Q for the September 30, 2023 quarter.

Investors perceived the liquidation of its assets to significantly support its core business and help the company return to profitability.

Will TRxADE Turn Profitable Anytime Soon?

For its last reported quarter ended September 2023, TRxADE’s revenues came in at $2.06 million, almost unchanged from the prior-year quarter. Its gross profit increased 24.2% year-over-year to $1.70 million.

However, the company reported a net loss of $3.53 million, reflecting a significant increase from a loss of $0.5 million reported in the year-ago period. Its net loss per share rose 63.7% year-over-year to $1.49. The increase in losses was mainly driven by a 60.2% increase in operating expenses.

As of September 30, 2023, the company’s accumulated deficit was $21.53 million, while its working capital deficit was $3.54 million. TRxADE’s cash balance as of September 2023 was at $34,031, significantly down from $1.09 million as of December 31, 2022. The deteriorating cash position was caused by increasing expenses mainly arising from mergers and acquisitions.

These figures indicate the company’s limited financial resources. It will need additional funding to keep its operations going. If the company fails to garner additional capital, its growth and financial position could be at stake. The reflected uncertainties raise concerns about the company’s ability to continue its operations at a healthy pace.

In addition, if the company continues to face the adverse effects of macroeconomic and geopolitical headwinds, operating costs are likely to remain high, affect its product line, and reduce margins and cash flows.

The company’s financial stance doesn’t look appealing. TRxADE might need to identify market opportunities to ensure its path to profitability.

Is TRxADE a Buy Now?

While TRxADE has been diversifying its business to return to profitability, its financial distress raises significant concerns.

Although the stock had rallied significantly over the past month, the subsequent share price dip and fundamentals raise questions about  the sustainability of the business. The average price target of 6.75 set by analysts means a potential downside is still substantial.

The stock is trading at a significantly higher price than its intrinsic value based on its financials and may well continue to fall. Buyer beware.