Have been watching CAJ for quite some time, its falling price...

Have been watching CAJ for quite some time, its falling price has looked increasingly more tempting but I have yet to buy in.

The issue with these types of companies and its not just CAJ but they are highly exposed - is the nature of their work relies massively on highly trained, relatively highly paid employees.

As more work is performed, more labour is required so employee cost will likely go up, not down. I know several people who work in various roles with the DI industry including a number who perform these scans daily. They commented that whilst management of their companies would love to see more scans per hour/employee - it is reaching a point now where there is less and less room to cut back labour and still get the scan done.

One noted that whilst it might take 5 minutes for a newer tech machine to do a scan (down from what might have previously taken 20 minutes with older technology), sometimes they get the feeling that management assume this means 4x the throughput and revenue should be possible.

The ageing and unwell population however and customer base is a double-edged sword.

Whilst they need more scans, thus more revenue - 5 minutes of machine time doesn't include the 10 minutes it takes them to hobble from the waiting room to scan room. Extra 5 minutes of instruction, explanation and prep for the scan. There is a point where you just cant speed up the time it takes for a frail unwell person to be moved through the process.

Investing millions of dollars in faster technology doesn't necessarily speed up all parts of the process. As staff resources are removed this has the potential to further decreases the machine utilisation efficiency as technical staff are required to be more involved in sorting out the pre and post scan procedures which they might have previously had support staff for.

Also, as per this presentation their highest revenue and margin scans, MRI and CT also require the most capital upfront to buy the machines. Concerningly in CAJ's case they are seeing negative and lower growth in these scans.

If these multi-million dollar machines aren't used as much as possible, its money sitting there wasted - even cutting employee costs wont help there, not only are they foregoing their largest revenue earner, their highest margin tools are costing them interest on the money they spent to borrow the machines.

Most of these issues are not specific to CAJ, but the general medical diagnostic imaging space where scale is not necessarily easily to leverage into efficiency. In some cases it might be possible if there are competing services close buy and a company can acquire, consolidate and close down one. If its simply growing in scale though, the machine employee costs may well growth the company - a challenging scenario if the government starts to look to change the rules.