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Cano Health (NYSE:CANO) stock price has crashed as concerns about the company’s future remained. The shares tumbled by more than 19% on Friday and reached an all-time low of $6.62. They have lost almost 100% of their value from their all-time high.
Bankruptcy risks remain
Cano Health is an American company that provides primary care solutions to thousands of patients every day. It provides patient care, transportation, and wellness solutions. Recently, however, the company’s growth has stalled, forcing the management to warn its investors of liquidity challenges.
In that statement, the firm said that its liquidity was not sufficient to cover its operations for the next 12 months. As a result, this raised the possibility that the company would sell shares again. Indeed, Cano Health has been a highly dilutive company as the number of outstanding shares stands at 2.81 million up from 690k in 2020.
Cano Healh has taken several initiatives to save its business. It changed its CEO and embarked on an asset sale process that is meant to raise capital and simplify its operations. It has also said that it is assessing strategic alternatives that could include a complete sale of the company.
Cano Health sold several of its locations in the third quarter. It has exited markets in California, New Mexico, and Illinois as it seeks to focus on Florida. It is now in the process of selling its Puerto Rico operations and have over 8,000 employees. In a statement, the CEO said:
“We believe these actions will reduce the administrative burden and complexity of our organization and eliminate redundant functions across markets where the economics didn’t make sense.”
Good revenue growth but challenges remain
Cano Health does not have revenue problems. In its recent quarter, the company made over $733 million in revenue from over $665 million a year ago. Its total capitation revenue stood at $770 million, which is a good amount for a company valued at over $33 million.
Indeed, Cano’s annual revenue jumped from over $231 million in 2018 to over $2.7 billion. Its revenue even jumped to $831 million in 2020 during the Covid-19 pandemic. The challenge for Cano Health is its huge debt burden and its lack of profitability.
The company generated a loss of over $492 million in the third quarter after losing $112 million in the same quarter in 2022. This loss was mostly because of goodwill impairment during the quarter. Cano Health reiterated its option to sell the company, saying:
“They include pursuing interest in a sale of the company or all or substantially all of its assets, finding short or long-term financing options with our current creditors.”
In addition to substantial losses and lack of free cash flow, the company has a mountain of debt. The firm has available liquidity of $53 million and almost $1 billion in debt. As a result, the management warned that it could issue going concern warning in 2024.
Is it safe to buy the Cano Health stock dip?
At this stage, we have seen that Cano Health’s management is doing all the right things to save this sinking ship. It is selling assets, reducing employees, and exiting its unprofitable markets. The challenge is that the clock is ticking and the company has little room to raise capital by selling shares.
Therefore, as we saw with WeWork, it is always dangerous to invest in companies that have warned about their future. As such, I believe that it is quite risky to buy this dip. I also suspect that the shares will drop below $5 soon.
The only saving grace is that the company does not have a revenue problem, which could make it an acquisition target. The alternative is a situation where it enters bankruptcy and reorganizes its finances.
The post Cano Health stock price analysis: Bankruptcy risks are elevated appeared first on Invezz
