No longer bull on Boule Diagnostics

Today I sold my position in Boule Diagnostics at 65.8 SEK per share. The reason why is that my investment thesis has played out, and because I only rank the company as a «Class 4»-company.

This is what I wrote on 1 October: «The share price has plummeted due to the american FDA putting their production under scrutiny back in 2018. There has not been any news recently regarding this issue, but there is expected that a clarification will come in Q4 2019. Nevertheless, the share price seems to have bottomed out».

Since then the FDA letter has been adressed and the share price has increased to a high of 78 SEK and a current share price of 66 SEK. 2019 ended at a very positive note, but Q1 2020 was somewhat of a disappointment and the coming quarters will be impacted by Covid-19 to a greater extent than Q1.

It may be that I sell my shares too early, which is often the case, but in the current market I want less exposure to companies I rate as Class 4.

Why is Boule Diagnostics a Class 4 – company?

  • Low and declining ROE / ROIC
  • High EBIT and EBIT%-variance
  • Low EPS-growth

The company has focused on selling instruments to emerging markets (e.g India) at a lower than normal price, and I believe this focus has resulted in lower profits to the company in the past. Essentially they have undercut themselves in order to boost future sales of consumables. This is not what I want to see as it indicates that the products are inferior and it may result in a permanent lower selling price for their instruments. Asia is soon the largest market for the company and in my opinion unfavourable for the company going forward.

About the company: Boule Diagnostics AB is a global diagnostics company that develops, manufactures and markets instruments and consumable products for blood diagnostics. The company serves hospitals, clinics, laboratories and companies within blood diagnostics, in both human and veterinary haematology. Haematology (first difficult word) is the study of the physiology of the blood.

Boule operates mainly in the decentralised haematology segment, which consists of smaller hospitals, clinics, laboratories and healthcare centres. 

Megatrend: Growing total world population, increased age of world population (geriatric, second difficult word), increased digital analysis of blood tests (accuracy and speed of analysis) and humanisation of pets are all megatrends in which the company will benefit from.

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