Quadramed (QDHC) - Microcap with Potential

I came across Quadramed Corporation (QDHC ,$6.52) by doing a database screen that focused on small cap companies with good valuation metrics little or no debt and significant insider buying. When I run this type of screen I will often come across a couple of dozen companies. Further fundamental research is required to filter thorough the list to come up with investment ideas that are worthy of my commitment. What piqued my interest about Quadramed, other than the screened criteria, was the sector it is in...software and systems for Electronic Health Records. The reason I find this industry very interesting is the great emphasis the Obama administration is putting into this area in the hope to reduce health care costs. In fact, the stimulus package passed earlier this year had approximately $19 billions set aside for health care technology. These are huge numbers that Quadramed is well positioned to take advantage of.

I will not provide a full blown research report on Quadramed but I will provide some of the numbers and reasons why I believe this company could be a double or triple within a year. No one should blindly listen to an anonymous blog (even a great one like Sirtuin Investor!) but should do there own homework (and I provide the links below to do so).

1. Market Cap: $56 million...Enterprise Value: $30 Million...yes this certainly is a micro cap. I like to keep a large portion of my assets in fixed income and make speculative but well thought out investments in under followed stocks. With a market cap so tiny, QDHC has no sell side Wall Street ANALyst coverage. I love this about a stock because if I Am correct and the company's earnings begin to accelerate, the ANALysts should take notice and provide a catalyst for stock appreciation
2. Tiny Float: 4.84 million shares outstanding. This can work both ways, making it hard to liquidate in a weak market and difficult to buy if the company starts to gain momentum on the upside. Since I believe QDHC is well positioned for growing EPS and, as a result, appreciating stock price...I love a small float. Small floats have been personally lucrative for me in the past.
3. Forward P/E = 6. According to Yahoo which I believe is coming from a single Reuters estimate.
4. New CEO: QDHC just snagged an executive from mega health care technology company McKesson to be its new CEO. His contacts should certainly help QDHC capture some of the stimulus money and his desire to move to QDHC gives me an independent opinion on QDHC prospects.
5. Insider Buying: 405,000 shares in just the last 6 months. I love insider buying in small cap stocks and, in this case, I suspect it is related to insiders' belief of how the recently passed stimulus package will stimulate new sales.
6. No Long Term Debt and Lots of Cash: $24,000,000 in cash or $2.89 per share. QDHC does have 4,000,000 share of convertible preferred stock outstanding with a conversion rate of $15 or so per share that was issued when the common stock was substantially higher in 2005. I look at this as a cheap source of financing that never has to be repaid and can possibly be bought back at a discount.
7. 1:5 Reverse Stock Split in June 2008: No one wants to own a stock that does a reverse split. A reverse split tends to drive down a stock further. However, if you are purchasing QDHC post the reverse split, you get the advantage of a lower valuation due to the the stigma of such. Remember, a reverse split, just like a regular stock split, has absolutely no effect on the finances or fundamentals of a company.
8. Recurring Revenues: I forgot the percentage but a significant portion of QDHC's revenues come from recurring maintenance and servicing contracts. Do your own DD here.

Well there you have it, an under-followed or should I say COMPLETELY IGNORED small cap stock (just look at the average daily volume) with, in my humble opinion, a compelling story. An investment in QDHC may help some of those resveratrol users that plan to live to 100 build up their nest egg (remember, Immortality is Expensive). You must, however, do your own due diligence.