Software solutions provider SCWorx Corp. (WORX) develops advanced applications and software to manage healthcare providers’ services. It also sells rapid test kits for COVID-19 and personal protective equipment. WORX’s stock has gained 52.1% over the past month, driven by the meme stock frenzy. It has become the latest target of retail traders thanks to discussions about it on social media platforms. However, its stock is currently trading 55.9% below its $5.76 all-time, indicating short-term bearishness.
WORX is currently under an investigation initiated by the former Attorney General of Louisiana for its alleged failure to provide accurate publicly available information regarding its supply agreement to sell COVID-19 test kits. In addition, WORX’s growth prospects have been adversely affected by the focus of most of its customers in the healthcare sector on meeting the nation’s healthcare needs in response to the COVID-19 pandemic. In addition to that, the company has failed to generate substantial revenue from the sale of PPE or rapid test kits in the last reported quarter.
Here is what we think could influence WORX’s performance in the near term:
Although WORX established a wholly owned subsidiary, Direct-Worx, LLC, to provide necessary items like COVID-19 test kits and PPE to its customers in the healthcare industry, it faced great difficulty securing a reliable supplier. Consequently, it generated minimal sales of these items last year. Furthermore, there is no assurance that WORX will generate any material revenue from this business in the future. In addition, since its customers saw unprecedented demand for healthcare services related to the pandemic, the demand for WORX’s software solutions for healthcare providers was negatively impacted. Also, significant delays in payment due to the financial impact of COVID-19 on its hospital customers could affect its cash balance.
Investigation and Lawsuit
This month, Kahn Swick & Foti, LLC’s partner, Charles C. Foti, Jr., who is the former Attorney General of Louisiana, announced that the law firm has commenced an investigation into WORX for the potential breach of its fiduciary duties and violation of federal laws by its officers and/or directors. In April 2020, the company announced a supply agreement with ProMedical Equipment Pty Ltd to offer COVID-19 test kits and a purchase order for two million COVID-19 rapid testing kits from Rethink My Healthcare. However, a class-action lawsuit has been filed against WORX owing to concerns regarding the accuracy of its publicly disseminated statements. Recently, the court has allowed the case to move forward by denying WORX’s motion to dismiss.
For the first quarter, ended March 31, 2021, WORX’s net revenue came in at $1.15 million, representing a mere 2.2% increase year-over-year. It expects its revenues to remain relatively flat in the near term unless it can raise sufficient funding to implement its business plans. WORX incurred a $747,943 net loss and a $0.07 loss per share over this period. In addition, the company reported a $287,306 net decrease in cash during the first quarter.
WORX’s 35.5% trailing-12-month gross profit margin is 35.6% lower than the 55.1% industry average. Furthermore, its net income margin, EBITDA margin, ROA, and ROE came in at negative 133.7%, 102.2%, 66%, and 117.9%, respectively. And its trailing-12-month cash from operations stood at a negative $1.10 million.
POWR Ratings Reflect Bleak Prospects
WORX has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. WORX has a D grade for Quality and Stability. The stock’s negative profit margin and its relatively high 3.51 beta are reflected in these grades.
Also, it has a C grade for Growth. This is consistent with the company’s dismal financial performance.
Beyond the grades we’ve highlighted above, we have also rated WORX for Value, Momentum, and Sentiment. Get all WORX ratings here.
Although WORX’s shares have gained significantly over the past month owing to the social-media-driven hype, the stock appears to be highly volatile given the business headwinds it has been facing lately. In addition to that, an ongoing investigation into WORX for the potential breach of its fiduciary duties and violation of federal laws by its officers and/or directors could cause its shares to retreat in the coming months. As such, we think the stock is best avoided now.
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WORX shares fell $0.09 (-3.54%) in premarket trading Tuesday. Year-to-date, WORX has gained 81.47%, versus a 14.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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