Friday, January 15, 2021

Buying Semler Scientific (SMLR) @ $85.95

Semler makes diagnostic products that help people with peripheral artery disease.
Peripheral artery disease is a narrowing of the arteries due to the progressive buildup of fat, called PAD.
If you have PAD, blood is not getting to to your extremities and you are 4 times more likely to die of heart attack and 2 times more likely to get a stroke.
- There are many treatments for PAD but the problem is with diagnosing the disease which requires a cardiovascular technician to perform the test.
- Semler invented a product called QuantaFlo which is a little clip that goes on your fingers and toes that measures the flow of blood to your extremities, giving your physician a diagnosis within a few minutes.
- Semler plays into the trend of the shift from treating to diagnosing.
- The business model is NOT selling the devices - it's the software. Rather than charging for the clip, users pay per report they produce. This creates 92% (!!) gross margin.
- $10.7M in revenue and $4.8M in net income - a 40% net margin.
- The company has showed profit for 12 quarters in a row.
- Very strong company financially. $16M in cash. No debt.
- Current Market Cap $611M. Very small cap with endless room to grow.
- The company has plans to grow with new product lines.
- TAM: Semler says that 80 million Americans should get screened every year.
- Semler's marketing strategy is to work with insurance companies, which seems like an effective way to reach doctors at a relatively low cost.
- The biggest risk: Their 2 biggest customers (Health plans) are responsible for 70% (!) of revenue. This is not a very unique risk for a small cap / new company.
- The company trades OTC.
- P/E ration is 63 - very reasonable.
- Profit margin 32.08%
- Return on Equity 63.32%
- Stocks held short of float very low at 2.84%
- Free cash flow - $7.56M
- I see nothing standing in the Semler's way to keep adding customers and keep growing for strong future returns on this investment. 

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