In tandem with their announcement of fiscal 2Q23 results, Quipt Home Medical (QIPT) also reported opening an at-the-market (ATM) equity offering. As the company clearly stated, and as we verified and reported, they had no intention or need to use the ATM in the near-term. Instead, the ATM was put in place for potential future use. Why? Because the company, to the best of its ability, tries to be a good steward of funds. By using an ATM in the future for its larger, accretive acquisitions, the company would avoid paying higher banker fees and inevitably taking some discount on its share price as part of the deal. In other words, the company was doing the right thing by giving itself the option to use the ATM in the future for an attractive acquisition. The company has a sterling history of making smart, accretive acquisitions, and in my opinion, therefore, earned the responsibility of having the ATM at its disposal. They did the economically right thing for the business.
However, there is absolutely no question that the majority of QIPT 0.00%↑ shareholders and/or “the market” disagreed with management’s decision. Despite killer results in 2Q23 and equally strong guidance, the share price dropped precipitously, with seemingly no floor in sight! During the subsequent two-week period, management heard from shareholders. They listened. They explained. They dialogued. And they learned that shareholders—and just as importantly, multiple prospective shareholders—rejected their economically wise decision. Why? Well, because the market and shareholders are not merely driven by economics; they are also driven by psychology. And, psychologically, the ATM was just too much of a hurdle for the majority of market participants interested or invested in QIPT. So, the company again did the right thing, based on this feedback: today, they terminated the ATM.
One of the reasons I am so heavily invested in QIPT is because management has proven, time and time again, that they are trustworthy. Now, admittedly, there are trustworthy, yet incompetent people. But in QIPT, we have a management team highly competent in expanding the business, highly competent in finding, acquiring, and integrating low margin companies into their much higher margin business. On top of that expertise, they say what they mean and mean what they say. As we reported, management reassured us that they meant what they said in their 2Q23 press release: they were not planning to use the ATM in the near-term. Today’s cancellation of the ATM proves management meant what they said. It also proves that management appreciates its shareholder base and is willing to listen to reasonable requests/feedback. Yes, the ATM made perfect economic sense, but again, the market also trades based on psychology, and psychologically, the ATM was just too much for the majority of market participants.
In the meantime, those who understand and appreciate QIPT, its management team, and its principled approach to accretive acquisitions and increasing organic growth, were “gifted” shares at a sub-$5 valuation. Several of our Breakout Investors have already profited significantly from the extremely cheap $5 call options they recently purchased. In the long run, what we can say about QIPT is that “nothing changed except the share price.” The company continues to become fundamentally and operationally stronger quarter over quarter. We expect that to continue and invite others to continue collaborating with us on QIPT and other names on our Breakout Investors platform and/or in our WhatsApp chat room.
Author’s Disclosure: I have a beneficial long position in the shares of QIPT either through stock ownership, options, or other derivatives. I wrote this post myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. I am not a licensed securities dealer, broker or US investment adviser or investment bank.
Breakout Investors’ Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Breakout Investors as a whole. Breakout Investors is not a licensed securities dealer, broker or US investment adviser or investment bank.
Good article.