Reliq Health Technologies Inc. (RHT:TSX.V; RQHTF:OTCQB; A2AJTB:WKN) bolstered its cash flow and earnings during Q3/22, leading Jefferson Research to uprate the telemedicine company to Hold from Sell, as reported in a June 10 research note.
Jefferson rates companies on five metrics—cash flow quality, earnings quality, operating efficiency, balance sheet, and valuation—to derive an overall rating.
During Q3/22, Reliq achieved a better quarter-over-quarter (QOQ) rating in two categories: earnings quality and cash flow quality.
In earnings quality, the area in which it performed the best, the company moved to Strongest from Strong.
"With a reported net income of -$800,000 in the last quarter that was equal to the adjusted number, Reliq's quality of net income earnings is extremely high," Jefferson Research noted.
In terms of cash flow quality, Reliq also shone. Having increased cash flow to -$1.5 million from -$2.8 million QOQ, the company garnered a Strong rating, improved from Weak.
Also positive for Reliq is its Low-Risk valuation rating.
"A favorable valuation (a Least Risk or Low-Risk rating) implies lower potential downward price risk that is evidenced by a company price multiple that is lower than the corresponding sector average," Jefferson Research explained.
Areas in which Reliq could improve are operating efficiency and balance sheet, Jefferson Research noted.
In the operating efficiency category, Reliq showed no change, again earning a rating of Weak. This is because the life sciences company's gross margin and asset turnover worsened during Q3/22. Gross margin dropped to 65.1% from 74%.
"The lower margin indicates that Reliq's competitive position has worsened and the company may not be able to derive higher prices for their goods or services," according to Jefferson Research.
On a positive note regarding operating efficiency, however, during the quarter, Reliq strengthened its earnings before interest and tax margin (to -29.7% from -93%), net margin, return on investment capital, sales, and general administrative costs, and equity turnover.
As for the balance sheet, Reliq fared worse QOQ, moving to a rating of Weakest from Weak because of worsening quick and current ratios. The lower current ratio, having dropped to 4.6 times from 7.3 times, indicates Reliq decreased its amount of current assets relative to current liabilities. The decreased quick ratio, down to 4.4 times from 6.7 times, shows the company lowered its total liquid assets relative to current liabilities.
"The balance sheet shows the ability of Reliq to pay its bills and fund future growth," Jefferson Research wrote.
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Disclosures for Jefferson Research, Reliq Health Technologies Inc., June 10, 2022
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