What a day for CRH Medical Corp.
Not sure if you remember but I always ask this question before I put my hard earned money to work. “Can I sleep well if I buy that stock XX”
I need to sleep well when it comes to investing and only way to make it happen is to invest in superb companies with great fundamentals that are managed by relatively ethical CEOs with high insider ownership that are great at allocating capitals.
But you may know that I like to have fun. My thrill seeking instinct has to be somehow satisfied otherwise I will probably bored to death. I gotta have fun. So I assign very small portion of my portfolio (less than $5K) in gambling.
When it comes to gambling I have a few rules.
- Current and future (free) cash flow of underlying business should be positive and hopefully growing
- Low debt
- Invest limit- $5K.
- Do not ignore extreme hype so use it when you can (Remember bitcoins and weed stocks?)
Today’s pleasant surprise came from CRH Medical Corp.
CRH has been on my watch list for a while. You know… CRH has never fully satisfied me but I was still interested in the company and its growth perspective. So when CMS coding change (regulations) was announced and due to its negative impacts on the business, CRH crashed down badly, I watched at the sideline. From all time high of $12.35 to all time low of $1.86 losing more than 85% of its value within 6 months or so was actually quite fun to watch.
and my gambling radar started ringing then I bottom fished this perfectly about 4 months ago or so by pure luck.
then CRH released its blow out quarter and it went up by 13% bringing my unrealized gain at exactly 100%. Yay!
I was skeptical and I still am because the CEO sold his shares at $12 or so before crashing it down. (It would be fair to ask whether he knew about it or not but who cares, because of its crash, I was able to profit off of it.) I also did not like the fact that there is not substantial ownership from management and they have issued options like papers. You know I do not like dilution, especially free dilution such as management options which is the worst of all dilution.
I concluded that the stock got crashed not because of its poor management of business or fundamental deterioration but mostly regulation. (keep in mind change of regulations could easily kill companies so I am often more cautious when I invest in medical related companies or any companies that are easily swayed by regulations).
But I liked the fact that the sentiment basically killed the stock so badly. I also liked that the business generated tones of free cash flows. It was quite cheap. I won’t talk about their quarters other than posting the news release below but they did a great job. Revenue up, EBITDA up, adjusted EBITDA up and most importantly, solid cash flow, stock repurchases etc…
If you ask me whether CRH should ever be one of my core holdings then I can confidently say No.
I will never put CRH as same league as my core holdings but it is an interesting pick that could go further up next little while.
What am I going to do with CRH?
I may sell half of the position to recoup my original investment and leave the rest until fundamentals deteriorate or let the whole thing run little further as sentiment seems to be turning positive due to its blow out quarter and it takes time for asset managers to notice and start to pile in their money. Shorts may get squeezed hard once asset managers pile in and that’s when price explosions occur. Not sure whether that’s going to happen but let’s see.
Were there any gambles that did not pay off?
Yes. there has been once and that costed me some money (hint- an infamous Canadian pharma company) You know why? because I ignored cash flow and low debt criteria. I learned my lesson after losing some money.
There is a perfect Korean saying for this. “Mending the barn after the cow is stolen”
I know. I should have prevented losing money at the first place but at least I mend the barn after my cow was stolen.
You may have an issue if you lost money but still not learned your lessons.
Don’t forget to make sure that the underlying companies generate positive free cash flows when you try to bottom fish any stocks that crashed down.
Oh man, just talking about gambling makes me quite excited. I understand why there are so many gamblers (day traders). The thrill was real when your bet paid off even though I wagered very little.
Happy hunting everyone!
Here are my most popular posts.
I recently put Warren Buffett’s top 50 quotes together. Check it out.’
Don’t forget about his stock picking tips!
Have you heard about Peter Lynch, a Wall street legend? Check out Peter Lynch’s top 13 best stock picking tips as well. You won’t regret it.
Why Quality matters the most!
Don’t forget to do your homework!
I also shared why cash flow is so important when you buying any stocks
You should ask this question before buying anything!
Also importance of not waiting too long when you find great companies
Importance of insider ownership- especially founders
Many people like this post as well.
I recently restructured my portfolio and changed investing style
The result of restructuring
I just love depressed markets… I know what you are thinking…
This was interesting
Classic Kevin o’leary post was quite popular.