WELL Health Technologies (TSX:WELL) has been one of the best tech stocks of 2020. It’s up 351% year to date, beating out larger, better-known tech companies in terms of total returns. However, there’s a secret rival that could steal some of WELL Health’s glory and dash investor expectations.
If you’re looking for a telehealth bet or already own WELL Health stock like me, here’s what you need to know.
Despite its size and potential, WELL Health’s closest rival rarely gets mentioned: Telus Health. Part of Telus (TSX:T)(NYSE:TU), Telus Health offers many of the same features and benefits as its smaller counterpart. However, this company is backed by one of the largest telecommunications firms in the country.
Telus Health offers medical data software for clinics, digital tools for insurance companies, pharmacy management software and, of course, a virtual clinic called Telus Babylon. However, Telus Health has one big competitive advantage: control of distribution.
Control of distribution makes a major difference in the tech industry. After all, Telus could certainly offer its healthcare applications and services along with the broadband and wireless plans that millions of businesses and individuals already sign up for. That key differentiator could make Telus Health a major threat to WELL Health.
WELL Health’s stock valuation
WELL Health is currently worth $1.1 billion. Meanwhile, the company generated $42.8 million in revenue over the past 12 months. That means WELL Health stock is trading at a price-to-sales ratio of 26.
By conventional measures, WELL is overvalued. The company needs to deliver on astounding growth expectations to justify this valuation.
Meanwhile, Telus Health is a private subsidiary of Telus Corp. If the parent company decides to spin off the Healthcare division, it could be worth considerably more than WELL Health.
Nevertheless, Telus stock is still a proxy for investors who want exposure to the telehealth market without the risk and volatility. Telus stock trades for 24.4 times earnings and offers a juicy 4.87% dividend yield. If the company decides to spin-off this segment in the future, I have no doubt it could create a windfall for shareholders.
WELL Health stock has dominated the headlines for much of this year. The stock has climbed faster than most other tech stocks in just a few months. It’s still got plenty of room left to grow.
However, investors are missing out on a hidden rival. Telus could have just as many (if not more) users of its apps and services as WELL. Investors looking for a conservative way to bet on the telehealth industry could add this stock to their portfolio.
To be clear, the global healthcare technology and telehealth sector is big enough to accommodate many players. Both stocks mentioned here could be successful over the long run. So, it might be a good idea to bet on the one that fits your investment style.
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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 Vishesh Raisinghani owns shares of WELL. The Motley Fool recommends TELUS CORPORATION.