If you are looking for a growth stock, you will be better off finding one that solves a major need, rather than one that seems to have some exciting new technology but may not be very useful in our economy.
The best growth stocks that create millionaire investors are those that solve major problems and have strong belief and backing from the market and its consumers.
One industry that could really use a disruptor, especially in Canada, is the healthcare industry.
The Canadian healthcare industry is old and inefficient, making it extremely costly to fund. When comparing our entire healthcare industry to other high-income nations, it’s clear that it’s one of the industries that needs the most improvement.
Political issues and a lack of investment over the years have led to an inefficient system that lacks up-to-date technology, which makes the Canadian marketplace one of the top places that is ready for disruption.
Innovation doesn’t come cheap though, so any company that’s trying to disrupt the sector is going to have to do it in a strategic way, just like how Well Health Technologies (TSXV:WELL) has been doing it.
Well Health owns 19 medical clinics in British Columbia that have roughly 180 physicians. It also has a software as a service (SaaS) based business that services 852 clinics, totalling more than 4,000 doctors, making it one of the largest electronic medical record service providers in the country.
Well’s goal is to consolidate and modernize the healthcare industry using digital technologies, but that’s not cheap. So, by owning and operating medical clinics as well, it has diversified its operations and can get some predictable cash flow coming into the business, to help fund its further expansion.
Up until now, it’s been growing mainly through acquisition, having made six acquisitions total since the start of 2018. The acquisitions consist of both medical facilities and other digital software companies that it can integrate into its own program.
Just last week, it announced another acquisition, taking a majority stake in one of B.C.’s leading health services companies, Spring Medical Centre.
Going forward, however, it intends to try and grow more organically, which is prudent, in my opinion, because relying solely on acquisitions can cause a company to overleverage itself, and if one or two acquisitions don’t work out as expected, it can leave the company in big trouble.
For investors of Well, though, that’s still a long way off. And looking at the numbers, it’s clear the acquisitions have been successful so far. In the third quarter of this year, Well did roughly $8.2 million in revenue — a 328% increase from the third quarter in 2018.
It also increased its gross margin from 29.2% in the third quarter of 2018 to 35.2% in the third quarter of 2019, which was a direct result of some of the acquisitions of higher-margin digital companies that it made.
Virtually every industry in our economy has been improved by technology, making things easier and more efficient, but the one industry that has been lagging others is the healthcare industry.
It’s not necessarily the machines and tools that doctors and surgeons use that need the upgrading, but rather the way that healthcare documents and records are stored and maintained.
This contributes to longer wait times and many other inefficiencies that currently plague our industry.
It’s already proven to be a high-quality growth stock, as the share price is up more than 220% this year. It’s also impressive that Well Health was recognized on the TSX Venture 50 list two years in a row — in 2018 and again in 2019.
Going forward, it should continue to disrupt the industry and expand its business rapidly, so gaining some exposure now could lead to massive capital gains in 2020.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.