WELL Health and CloudMD Continue to Fall: Should Investors Be Worried?

Two of Canada’s hottest growth stocks this year, these telehealth companies have seen their value drop significantly in recent months. Should investors be worried?

| More on:
5G chip

Image source: Getty Images

I am a strong believer that the world will continue to become more digital, as we move forward into the next decade. These are trends we are seeing in many industries including e-commerce, payments, accounting, among many others.

In the year of the pandemic, telehealth companies have seen an incredible amount of growth. Companies such as WELL Health Technologies (TSX:WELL) and CloudMD (TSXV:DOC) have been the talk of the town for months. However, over the past two months, both companies have experienced prolonged downturns, leaving retail investors to wonder if they should consider cutting losses.

In this article, I will discuss the outlook for both companies.

What goes up, must come down?

Prior to the recent declines in stock prices experienced by WELL Health and CloudMD, both companies had been performing extremely well in 2020. Their respective year-to-date performances, prior to the start of the downturns, stood at about 450% and 330%, respectively. Investors should understand that this type of growth is very rare and that sustaining such parabolic growth is even rarer.

Since the start of October, WELL Health stock has seen a decline of about 18% at the time of this writing. Meanwhile, CloudMD has fallen about 35% over the same period. It should be noted that these downtrends can be seen in other companies that operate within the same industry.

American telehealth company, Teladoc, has declined about 18% since early-August after seeing a more “modest” gain of 200% since the start of the year.

It can be argued that the growth seen by these companies was helped, in large part, by the pandemic. As countries imposed stay-at-home orders, a large proportion of families needed to adapt.

One of the ways they managed to do this was by adopting telehealth practices. Now that the distribution of a COVID-19 vaccine appears to be just around the corner, institutional investors are starting to question the upside that presents itself in this industry.

Should investors be worried?

I believe any bearish sentiment from investors regarding telehealth companies to be very short-sighted. That said, I would agree that WELL Health and CloudMD are incredibly overpriced for their relative values today, an increased adoption of telehealth is undeniable.

The industry has been forecast to grow at a compound annual growth rate of 37.7% from 2020 to 2025, bringing the global telehealth market from its current size of $38.7 billion to a staggering $191.7 billion.

Foolish takeaway

I remain bullish on the telehealth industry. WELL Health and CloudMD have continued to grab market share at a rapid pace this year, including establishing a presence in the American telehealth market. The stocks may continue to fall in the short term.

However, investors that are willing to bet on longer time horizons should not be worried. The telehealth industry will continue to grow. As long as WELL Health and CloudMD continue to perform as they have, early investors should be rewarded tremendously.

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 Jed Lloren owns shares of WELL and Teladoc Health. The Motley Fool owns shares of and recommends Teladoc Health.

More on Tech Stocks

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

1 of the Best Canadian AI Stocks (With Dividends) to Buy Now

OpenText is an AI stock that trades at a significant discount to consensus price target estimates in June 2024.

Read more »

online shopping
Tech Stocks

3 Reasons to Buy Shopify Stock Right Now

Improving earnings quality, sustained cash flow growth, and another reason support a buy-the-dip thesis on Shopify (TSX:SHOP) stock today

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

2 Canadian Growth Stocks I’d Stash in a TFSA for the Long Run

Here's why Constellation Software (TSX:CSU) and Shopify (TSX:SHOP) are two top Canadian stocks long-term investors should consider.

Read more »

Wireless technology
Tech Stocks

Predictions for the Top Canadian Tech Stocks in June 2024

Whether it's the growth of artificial intelligence or e-commerce, these three tech stocks offer massive growth in June and beyond.

Read more »

Golden crown on a red velvet background
Dividend Stocks

These 5 Stocks Have Unstoppable Dividend Growth

These five stocks can form a diversified stock portfolio of dividend aristocrats from the TSX.

Read more »

Online shopping
Tech Stocks

Up 42% from 52-Week Lows, Is Shopify Stock Still a Buy?

Shopify (TSX:SHOP) stock looks like one of Canada's best growth stocks. And right now, it looks like it's on sale,…

Read more »

A microchip in a circuit board powers artificial intelligence.
Tech Stocks

NVIDIA’s Historic Stock Split: Too Late to Invest?

Open Text Corp (TSX:OTEX) is a Canadian AI stock that uses NVIDIA (NVDA) chips.

Read more »

A microchip in a circuit board powers artificial intelligence.
Tech Stocks

“Goldilocks Conditions”: How AI Adoption Is Fuelling Stock Market Gains

Conditions look just right for the "Goldilocks Effect," and AI stocks are fuelling the way. But this could be the…

Read more »