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No. of Recommendations: 5
Patient Home Monitoring (PHM.v) is a microcap listed on the TSX-V with FY2014 sales of $21M CAD. It's headquarters and operations are in the US.

PHM's strategy is to acquire small, privately-held companies with services and products geared to home-based health care, and to use the acquired customer databases to cross-sell these products and services for organic growth. PHM's strategy benefits from three trends -- a growing population of the elderly with chronic disease, a shift in compensation for home-based health care, and a large, fragmented market of very small companies serving the chronically ill.

PHM was one of Jason Donville's three top picks on 12/24/2014 with a December 2015 target of 1.50 CAD. Last week on BNN Market Call he rated it a buy with a 1.75 CAD target. It is loved by other Canadian money mangers as well.

I bought into PHM shortly after Donville's call at the end of December, and sold it yesterday for a 30% gain. Normally I'd look at something like this as a long-term holding. However, after looking at the FY2014 financial statements released at the end of January, I'm not comfortable with the quality of what these guys are buying. In the footnotes of the year-end statements, the allowance for doubtful accounts is $5.3M -- an astonishing number. The allowance for doubtful accounts is 41% of AR and 25% of sales. So the sales numbers are not really what they seem and it's clear they are purchasing distressed assets.

There are a number of other reasons I dislike this business which I won't go into here because the bad debt issues are enough to turn me away. These folks talk a great story, and the analysts seem to be buying into it. So there's a good chance I'm wrong. I can see it getting to Donville's target by year-end because of the almost universal love, but for now it won't be with me. I'm out -- I'm going to wait and see how it develops.

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