10 Best NASDAQ Stocks Under $20 to Buy

7. R1 RCM Inc. (NASDAQ:RCM)

Number of Hedge Fund Holders In Q2 2024: 42

Share Price: $14.17

R1 RCM Inc. (NASDAQ:RCM) is a specialty business services provider that caters to the needs of the healthcare industry. The firm allows hospitals and other similar establishments to manage their billings and revenue collections and stay up to date with regulatory compliance. Its stock is up 31% year to date, primarily due to the fact that the firm is being taken private by its investors. After R1 RCM Inc. (NASDAQ:RCM)’s SEC filings revealed investor willingness for a deal in February, the stock soared by 31%. The shares added another 9.7% in August after the firm announced that it had entered into an acquisition agreement that would take it private for $14.30 per share. Consequently, R1 RCM Inc. (NASDAQ:RCM)’s stock hinges on the success of this deal, and if there are any hurdles, then the shares could struggle. On the business model front, since R1 RCM Inc. (NASDAQ:RCM) is a revenue cycle management company, it stands to benefit from the introduction of AI into its offering and a stable, margin heavy business with stable recurring revenue. However, the firm has sizeable long term debt of $2.2 billion which can hamper its growth by reducing cash flow.

Voss Capital mentioned R1 RCM Inc. (NASDAQ:RCM) in its Q1 2024 investor letter. Here is what the fund said:

“Just as we hit send on the Q4 letter, R1 received a non-binding buyout offer from its largest shareholder, private equity firm New Mountain Capital (32.3% ownership). At first the Board encouraged New Mountain to collaborate with the second largest holder, TowerBrook Capital (29.5% ownership), as they knew TowerBrook would likely not be a seller at such a low-ball valuation (minority shareholder “squeeze outs” by existing PE owners are a recurring theme this year). R1’s board then backtracked eight days later and put New Mountain in timeout and hired both Barclays and Qatalyst Partners (a boutique M&A firm with stellar reputation of getting tech companies sold) to run a full auction process. We did not sell any RCM on the initial pop (thinking it to be a more stable merger-arb type situation) and unfortunately rode the stock all the way back down to its pre-deal announcement price. We think the market is underestimating the probability of a higher buyout offer, even if it is from New Mountain and TowerBrook and the gains will quickly be recouped. If there is no deal, we believe the upside will be much greater over the next few years as R1 continues to execute and on-board large customers and reduce costs using AI. Our base case price target moves down to $16 if a deal is commenced and remains $28 (133% upside) over the next 2-3 years if there is no buyout. This is based on 14x 2026 adjusted EBIT (EBITDA-Capex), or 12x Q4 2026 EBIT run-rate, a large discount to comps.”