Investoid

Despite my tech background, I currently don’t have any tech stocks or index funds in my portfolio. I think part of the reason for that is that Canada’s tech index is so heavily weighted on RIM, but also because there is a dearth of up and coming public tech companies, relative to the U.S. I plan on looking at more Nasdaq-based companies in the future, but in the meantime I have been looking at Systems Xcellence (SXC – TSX / SXCI – Nasdaq), which is a company that has a dual listing.

Company Analysis

• SXC is a pharmaceutical software provider. Their business focuses on managing the prescription drug supply chain.
• Two primary market customers:
• Payor customers such as Blue Cross/Blue Shield and Governments
• Provider customers such as chain and independent pharmacies
• Currently the payor market represents approximately 70% of revenue, providers the remainder.
• Revenue is concentrated in the U.S. (over 95%).
• The company had a U.S. IPO on Nasdaq in the past six months, which has raised its profile in the U.S.

Market Analysis

• Total market size for payors and providers: $4.5B.
• Growth potential:
• The number of prescriptions being filled is increasing as North American population ages.
• In addition, number of prescriptions per individual is increasing.
• Payor customers are looking to increase operational efficiencies to reduce administration costs.
• Pharmacies require effective solutions to manage increasing volume.

Financial Analysis

Stock Analysis

• Since dropping to $12 (Canadian) in June, the company’s stock has increased dramatically. It reached a high of over $25, but has since pulled back to the $21.50 range.
• The stock is more volatile than the Canadian IT index (as represented by XIT), but is strongly correlated to it.
• According to the company, 12 analysts cover the stock on both sides of the border. According to GlobeInvestor, the consensus recommendation on the stock is a strong buy.

Opinion

Overall, I think this company is in a solid growth sector and has demonstrated strong organic growth over the years. I like the space they’re in and the fact that they are part of the solution to manage overall costs in the health care system, rather than being a cost driver.

Using my valuation models, I have arrived at fair value prices pretty close to SXC’s current price. I think that the stock is fairly valued at this point given future expectations, but if the stock continues to fall to $19 or so I think it becomes a good value and I will be looking to accumulate some for my portfolio.