A Look at Pacific Smiles Group Ltd (ASX:PSQ)

I looked into Pacific Smiles Group Ltd (ASX:PSQ) recently. The stock has halved in price over the past few years, trades on a forward price-to-earnings ratio (PER) of 18.6 and pays a 5.1% dividend (forecast). Revenue has doubled since 2014 as the company continues the roll-out of its dental practices in Australia, but profit has flatlined over the same period.  I thought that perhaps the reason for the failure to grow profit is because of an acceleration in the rate of opening new locations. A new practice is typically loss making in its first year and takes five years to become fully mature. EBITDA per store has fallen 35% from $390 thousand in 2014 to $250 thousand this year (based on company guidance). Meanwhile, the percentage of stores over five years old has fallen 8% from 50% to 46%. The age distribution of practices has shifted to the left, but nowhere not enough to justify the fall in profitability per location.