OTCQX:BDMS (Birner Dental Management Services, Inc.) is looking rather bearish lately and we’ll try to figure out why and what an investor might expect in the near and not-so-near future. BDMS is a dental business service organization, which engages in servicing geographically dense dental practice networks in Colorado, New Mexico and Arizona.

Just last November it looked like BDMS was about to go big time. Stock was up to $18.61 and volume had picked up quite noticeably. Right now it sits at its yearly (and 5-year) low at $7.00.

Be careful when you Google BDMS – you might get a suggestion/question about whether you really meant to search for BDSM and I’ll leave it to the reader to do your own research on that topic. The BDMS we’re talking about here is based in Denver, CO and has approximately 490 full time employees according to information made public by the company. As their URL www.perfectteeth.com might have led you to believe, they’re a dental services company (franchise) network in Colorado, New Mexico and Arizona focusing on cosmetic dentistry, but also maintaining the standard slate of orthodontics, oral surgery, endodontics, periodontics, dental implants and pediatric dentistry. They offer many of these services through their own dental plan the PERFECT TEETH™ Dental Plan (not sure why it’s in ALL CAPS, but it is). The firm was founded in 1995 and claims to be the largest provider of comprehensive dental care in Colorado and New Mexico, with increasing penetration in Arizona. At its most basic level, BDMS essentially serves as an outsourced business office for practicing dentists, orthodontists and oral surgeons, removing the burden of paperwork and bureaucracy and “letting dentists be dentists.” According to their website, on two separate occasions they have been included on Fortune Small Business Magazine’s list of America’s Top 100 Fastest growing Small Public Companies. As of December 31, 2016, the company managed 69 offices, including 48 in Colorado, 11 in New Mexico, and 10 in Arizona under the PERFECT TEETH name.

Way back in March of 2012, BDMS stock value peaked at $23.03, but hasn’t reached any higher than $18.61 in the past 1-year period (52-week range is $6.01 to $19.89). Currently it sits at $7.00, on the bottom of what looks like a trough, and volume is actually up about 14-fold over average to 15,370 (average was 1040). Market Cap is 13.11M and EPS is -$0.81.

The company incurred a loss of $900,000 during the Q2 of 2017 and For what it’s worth, BDMS believes much of the decline in revenue and Adjusted EBITDA is due to a decrease in the number of dentists in their network.  The count on March 31, 2016 was 112 and had dropped to 98 at December 31, 2016. The last announced count was back up to 105 as of July 31, 2017. The Company currently manages 69 dental offices, of which 36 were acquired and 33 were developed internally (“de novo offices”). With average revenues of roughly $220K at each location, and looking at their quarterly earnings, this appears to be a sound theory. If so, it might be a good idea to keep up with how many locations they have at the time you make your investment. The count looks like a leading indicator of next-quarter performance.

Further, if one looks a little deeper at the numbers in their last several quarterly reports, it becomes evident that BDMS may be facing management and operations difficulties. Low gross and net margins could mean that they aren’t significantly differentiating themselves from their peers. Also compared to their peers nationally, BDMS revenues and earnings have moved much more slowly, which could be a tell on their operational inefficiencies (including poor cost control) and lack of management focus. All of that said, the firm appears to be engaged in trying to get their operating costs under control and that may bode well for investors, especially given the current low stock price.

The dental business isn’t going anywhere and BDMS is operating and ramping up in areas of the country where they don’t have many, if any, peers on their level. On GlassDoor.com, most of their reviews from employees reflect a positive future outlook. However other current and former employees cite a number of low-volume locations that could have been chosen more carefully. This was a summary and I encourage you to do your own detailed research, but I think this is a bounce opportunity and that the stock is undervalued by the market right now. If they’re indeed busy making adjustments to widen the operating margins and increase earnings, now would be a good time to jump in if you’ve got a tolerance for a small amount of risk or understand the regional marketplace conditions in CO, NM and AZ.