CareRx (TSX: CRRX): 7x EBITDA, Margins Inflecting, and a Three-Year Overhang Just Lifted

A boring, profitable compounder with 18% share of a market that is only growing.

To read our full disclaimer, click here.

For three years, one number kept this stock in a cage.

The province that funds most of its business kept threatening to cut the rate it pays per bed. So investors treated the whole company as a coin flip on a government decision, and the multiple stayed on the floor.

This spring, the cut was cancelled.

Not deferred. Cancelled, and the rate maintained going forward.

The biggest overhang on the stock was just removed - replaced by a much smaller, capped headwind - and I don't think the market has repriced it.

Here is what makes that interesting.

The overhang lifted at the exact moment the business hit its inflection. Last quarter, revenue, EBITDA, margin, and net income all moved up together, with profit growing faster than revenue. That is operating leverage finally showing through, and margins are now closing in on double digits.

Underneath it: a profitable, dividend-paying business that already holds about 18% of its market, with plenty of room to keep taking share, a demographic wave at its back, and a balance sheet cleaner than it has been in years.

I think the setup is asymmetric.

My base case points to a double from here, the bull case to more than 3x, and even my bear case limits the downside to roughly -25%.

Those are illustrative scenarios I use to frame the range, not forecasts, promises, or investment advice. The full assumptions behind each one are laid out below, and you should do your own work before drawing any conclusions.