It’s the post-high let down. That’s what investors are left with after short-squeeze play SCWorx (NASDAQ:WORX) stock got hot earlier in August. Now that WORX stock short interest sits at a much more earthly 16.51%, down from stratospherically high 60% levels, is there anything worth looking at?
Well, there’s always something to look at as investors. In this case the question is really if WORX shares warrant investment capital at this time. To answer that, let’s look beyond the short squeeze narrative and into the actual business.
Basically SCWorx helps hospitals and other healthcare facilities normalize and automate their data. In the process their operating expenses decrease.
SCWorx notes that there is likely massive costs due to waste created by inaccuracies in current systems. With those errors affecting the data for an estimated 30%-40% of the average 18,000 to 200,000 item master, costs are significant.
The business of SCWorx revolves around something called the Item Master. If you’re someone like me who doesn’t work in MIS and inventory analytics, that term requires clarification. An Item Master is an important record containing all of the key information about an item within a firm’s inventory.
SCWorx applies its particular expertise regarding the Item Master to healthcare logistics. As its website notes, the pressure to reduce expenses in healthcare logistics is mounting: “According to Logistics Tech Outlook, supplies, purchased services and capital equipment acquired by the supply chain represent approximately 33% of a hospital’s operating expense budget… and growing.”
Thus, the business of SCWorx is creating reliable interoperability through accurate item master data.
In theory this seems like a company worth considering, but the financial fundamentals underpinning the company are less than impressive.
Fundamental Troubles Challenge WORX Stock
SCWorx is a small company. It recorded slightly over $1 million in revenue in the latest quarter. There’s nothing inherently wrong with that.
But I’d like to draw attention to the idea that the company is unlikely to be well-run. In April, SCWorx was notified that it wasn’t in compliance with the Nasdaq’s rules for continued listing as it hadn’t filed its 2020 10-K by then. It’s a fair assertion that a company that doesn’t file its 10-K nearly 5 months after the year’s end is not well-run.
Ultimately, that 2020 10-K would be posted on the company’s site and the company would appoint a new CEO. The company also posted its 10-Q for the second quarter of 2021 on Aug. 16. That filing painted a picture of a company with multiple problems.
From the broadest perspective, SCWorx is in trouble. Revenues declined 24% in Q2 from $1.444 million to $1.095 million on a year-on-year basis. The company’s net losses, though, actually improved. This was wholly attributable to a decrease in general and administrative expenses. So, this looks to be a consequence of reduced salaries and stock-based compensation expenses, not improved operations per se.
In fact, the company was in such deep trouble that it pivoted into the sale of personal protective equipment (PPE) and rapid test kits for Covid-19. That effort was short-lived and unsuccessful as SCWorx discontinued the practice. As of the latest 10-Q filing, the company was working to reduce its PPE and test kit inventory.
In Need of Funds
The 10-Q also notes that the company is looking to obtain additional financing to fund its business plan. It’s difficult to imagine that many lenders will be willing to offer SCWorx the amounts or terms it seeks given its decline and pivot into PPE sales.
But make no mistake about it, the company is in dire need of cash. It had an ending cash balance of $32,070 in Q2. It began with $376,425. That means it burned through $344,355, or 91%, of its remaining cash.
A year earlier the company ended the quarter with $334,500 after using a much smaller 31% of cash on hand.
In short, I see little in SCWorx that actually works, or that’s worth investing in at this point.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.