Sunday Research Pipeline Session #5 - Two Diagnostic Test Turnarounds

Watching for early growth inflections and a reduction in risk factors

Some of the best stocks I’ve owned throughout my investing career have been medical device/diagnostic test companies. They can tend to trade at premium price or enterprise value to sales valuations as long as they’re at least around breakeven.

If you can find them at point where accelerating sales growth intersects with a time where they are no longer burning loads of cash, you can see a significant upward revision in valuation multiples because of the recurring revenue nature of these kind of businesses.

I don’t know if I’ll ever own another KRMD in my lifetime, rising from around 10 cents to around $11.00 while I owned it, but I’m sure going to try.

So, this Sunday Journal entry includes two diagnostic test stocks. Both of these stocks delivered big returns in 2020/21, like many diagnostic test companies did during the Covid hype. However, also like many other “Covid beneficiary” stocks, they came crashing down to earth once the hype subsided.

While these two stocks don’t quite yet qualify to be added to our MS Microcap Quality Index (MSMqi), their turnarounds are worth watching very closely.