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Summary of Operations
Sharps Compliance Corp. is a healthcare waste management company. If a clinic, pharmacy, or a similar location has waste, they help to dispose of it in a safe manner. The system is flexible with waste collection performed directly by them or through the Post Office. Their Sharps Recovery System offers mailback products, while their MedSafe product helps in the disposal of medications to prevent abuse. They have other products tailored to disposal needs that account for smaller portions of revenues. Sharps has two sites in Texas and Pennsylvania that treat and process medical waste, which they pick up from across 37 states.
Given the nature of their work, COVID actually increased their business. With pandemic dying down, so have cash flows.
Strategy
While they offer diverse products for larger and small customers, their focus is on the larger ones, where they can enjoy more fixed costs from its route-based transportation model, as well as more consistent revenues. They are employing a sales force to reach out to these potential customers and grow their accounts.
They maintain a healthy balance sheet with very little debt and have about $31 million in cash to get through potential hiccups.
Growth and the Future
The company believes that America’s aging population will have more medical needs and thus more waste disposal. It also believes the shift toward care through clinics and retail pharmacies provide other growth opportunities. With a secular tailwind and system ready to accommodate it, Sharps should do well, as it proved with the COVID windfall.
While operating cash flows are cyclical, the company is sitting on the cash it acquired from COVID, able to sustain its operations and acquire other companies along the way.
Valuation
Let’s assume the company can do $1 million in free cash flow.
Growth Assumptions: 20%
Intrinsic Value Per Share: $1.50
Net Cash Per Share: $1.91
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It looks like they had another burst of profitability back in 2008-10. Do you know what that was about?