Here's What's Really Hurting Rennova Health Inc (NASDAQ:RNVA)

Rennova Health Inc (NASDAQ:RNVA) has been a tough stock to hold over the last twelve months. The company has lost more than 97% of its market capitalization across the period and is down more than 81% year to date. As things stand, Rennova trades for a market capitalization of just $2.82 million, at $0.45 – well below minimum bid for its NASDAQ listing, despite a February reverse split aimed at rectifying this latter noted non-compliance issue.There's a meeting set up for June 2, delayed on its original target of May 19, ahead of which management is attempting to scrape together a 50% quorum on a number of measures, none of which are particularly attractive from a shareholder perspective, but all of which are likely necessary if the company is going to carry forward and maintain its listing.Things aren’t going great, but is there room for recovery? Perhaps.For those not aware of why Rennova is having such a hard time, it's worth us briefly touching on what's going on in its primary revenue driving industry – urine sample drug testing. For decades this space expanded and companies like Rennova drew benefit from this expansion. In theory, it's still expanding, and at a faster rate than ever. The opioid problem in the US is at epidemic levels and testing of the individuals caught up in the epidemic should be big business. And it is, but not in a way that benefits Rennova. Basically, the whole industry is fragmented and rife with fraud. Drug addicts are being used by rehabilitation centers to drain recovery associated costs from insurance companies (there's a great OCR piece on this here for anyone interested) and the insurance companies are actively trying to reduce the costs associated with these centers – one major part of which is urine testing.Basically, Rennova has a good product in a space where it's needed, and in which this need is expanding, but no one wants to pay for it.Management noted this exact situation on the latest conference call:

"…the facilities themselves, our customers, have undergone a lot of scrutiny as has the medical necessity of a lot of tests that they use to treat their patients."

The response, then, is an attempt to diversify away from this operation through various different sub-type entities – healthcare software, gene testing and an as yet unopened hospital in Tennessee.The latter, for us, is where any recovery is going to come from. This facility generated $12 million in its last year of operations (2015) with EBITDA of $1.3 million. The company paid $1 million to acquire it and initially wanted to get it up and running by the end of this quarter. It's now not set to open before the third quarter, and we're looking at this opening as a major catalyst for turnaround – assuming management can execute on its strategy as planned.The key to success will be how effectively the company can leverage the location in as far as expanding its other operations is concerned. If Rennova can use it as a facility from which it can establish relationships with surrounding healthcare establishments, then it could be a growth driver. Remember we're not looking at a huge company here. It's a $2 million market cap and it's not going to take much in terms of facility centered revenues growth to outweigh this valuation in EBITDA, especially given the expected EBITDA for the facility itself.Bottom line, this one's not going to be a smooth ride over the coming few months as management squares up to shareholders in its efforts to get the necessary measures approved. Cash is effectively non-existent (a little over $1 million at last count) so we're going to see dilution and issue, and sentiment is unlikely to ease near term. At it's current valuation, however, and so long as Rennova can navigate what's likely to be a tough rest of 2017, there's a lot of room for recovery and revaluation.Not pretty, but a decent punt at current prices for an investor willing to shoulder a bit of dilution.We will be updating our subscribers as soon as we know more. For the latest updates on RNVA, sign up below!Disclosure: We have no position in RNVA and have not been compensated for this article.