NEW YORK, Aug. 23, 2017 /CNW/ -- TSO3 faces >80% downside risk as the company's most recent round of stock promotion, the third in the past 13 years, ends with a realization as to how poor the product's end market acceptance actually is.
- History of Canadian Healthcare Promotions: Canada has been a fertile location for promotional healthcare companies. Activist short sellers have played a key role in shedding light on Valeant, Concordia, Nobilis Health and CRH Medical.
- Key Players Have a Promotional Past: Management and IR firm, LioLios, have both been independently attached to past failed stock promotions. Company has cumulative losses of C$ 127m and management has no alignment with shareholders given <1% ownership.
- Product Is Competitively Challenged at Every Turn and May Be Damaging Instruments: TSO3's VP4 competes against the likes of Sterrad (J&J) and Steris. VP4 trails its competitors' offerings across sterilizable universe, technology UX, product maintenance and pricing. Additionally, management has highlighted that VP4 may damage scopes that were designed for liquid sterilization.
- Gentige Distribution Partnership Likely to Disappoint: TSO3's current hyped distribution partner, Gentige, offers its own competitive offering to VP4 and faces a host of its own issues related to organizational turnover, financial performance/ restructuring and a consent decree with the FDA.
- Dismal End Market Sales Are Being Buried by Lack of Disclosure and Accounting Obfuscation: TSO3 no longer discloses consumable sales and hasn't made good on its promise to disclose the installed base by early 2017. Spruce Point's field checks and analysis indicates that current installments are only 5% of shipments.
- Risk/Reward Unattractive at Current Levels: TSO3 valuation levels, 15x sales and 19x book value, are 5x peers and can only be justified by the achievement of multiple stretch assumptions across market share and margin gains.
The research report can be found on our website at http://www.sprucepointcap.com/tso3-inc/ and updates will be posted on twitter @sprucepointcap.
Spruce Point Capital has a short position in TSO3, Inc and stands to benefit if its share price falls.
About Spruce Point Capital
Spruce Point Capital Management, LLC, is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities.
Spruce Point Capital Management
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SOURCE Spruce Point Capital Management, LLC