Couple of thoughts as requested:
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Their two business models, Discovery and Safety Assessment (DSA) and Research Models and Services (RMS) are high in demand but i believe at the same time it is a competitive space.
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In their annusal report they share the following in terms of competition:
“For DSA, we have many competitors, including three public companies in the U.S. and one public company in China.”
"For RMS, there are five main competitors, including one public company in the U.S., two privately-held companies in the U.S., one government-funded, not-for-profit entity in the U.S., and one privately-held company in Europe.”
The Company delivered an extraordneity reveneau growth, from $70m in 2021 to $550m in 2022. The following is mention regarding the growth in their annual report:
Revenue grew to $547.7 million during the fiscal year ended September 30, 2022 (“FY 2022”) from $89.6 million during the fiscal year ended September 30, 2021 (“FY 2021”), driven by a $75.7 million rise in DSA revenue and $382.4 million of incremental revenue from our RMS business. Growth resulted primarily from acquisitions and growing customer demands along with favorable pricing.
But this growth comes with a high cost of revenue:
- Part of it was the one time cost regarding recent acquisitions:
RMS operating loss was $189.3 million in the fiscal year 2022. The loss includes non-cash charges for goodwill impairment of $236.0 million, $24.7 million intangible amortization related to intangible assets acquired through the acquisitions of Envigo, RSI, and OBRC, $11.1 million of depreciation expense and $10.2 million amortization of inventory step-up related to inventory acquired through the acquisitions of Envigo and OBRC.
- Consistent Operational losses in the last years, data point of 2022:
RMS operating loss was $189.3 million in fiscal year 2022. The loss includes non-cash charges for goodwill impairment of $236.0 million
- Lower supply over the next year as a result of the time it’ll take to audit facilities in Cambodia.
We continue to work with external and internal resources to review our current NHP inventory from Cambodia and we’ll begin shipments of these NHPs only after such time that we can reasonably determine the NHPs in our possession are purpose-bred and not wild caught. While we are not currently aware of any outside constraints on importing NHPs from Cambodia, Inotiv will not import from Cambodia until we can complete satisfactory on-site audits of our suppliers. We are in communication with our Cambodian suppliers and we expect that we will be able to be on-site in Cambodia to complete these audits during this quarter. We do understand Cambodian officials have stated that they will be shipping NHPs.
So the big question mark is about profitability as the company is still not profitable. I believe a sustainable plan in terms of the profitability mid to long term will drive the stock price in the future. You can argue the company is undervalued, at the same time there is a reason why its undervalued (see above). If you believe they can address the profitable and the supply chain I can see it as good long-term investment, for the next ER i am not sure how much they are ready to share yet.