One of the most popular stocks among analysts this year has been the digital health stock WELL Health Technologies (TSX:WELL). With a track record of innovation and big-ticket acquisitions, WELL Health is consistently brought up in value discussions.
Lately, the conversation has been even more interesting following WELL’s Q1 earnings call in which the company disclosed its engagement with renowned law firm Fenwick & West to help it with a U.S. IPO listing in Q4 of 2021. Fenwick is a high-profile name on Wall Street; it led Facebook’s IPO and its client base includes tech giants such as Amazon and Cisco. It was also involved in the recent IPO listing of Coinbase. With WELL’s American peers trading considerable multiples higher, investors have now been given a unique opportunity to get in early.
WELL Health stock is grossly undervalued
WELL Health stock is valued at a market cap of $1.4 billion. This suggests its trading at a forward price-to-sales multiple of less than six, which is very reasonable given that analysts forecast the company to grow revenue by a staggering 367.5% year over year in 2021. Bay Street analysts also expect WELL Health to increase the top line by 40% to $329 million in 2022.
WELL stock is undervalued when you compare it with digital-health peers south of the border. For example, analysts expect Teladoc to post an earnings loss of US$0.91 per share. Comparatively, WELL Health is expected to improve its bottom line from a loss per share of $0.03 in 2020 to earnings of $0.08 in 2022.
We can see WELL Health is trading at a significantly lower multiple, despite the fact that it is expanding revenue and profit margins at a faster pace. This is being demonstrated in the technicals as well. We are seeing overall short interest and volume decrease, while the cost to borrow is increasing. Investors are quickly becoming aware of WELL Health, and they want a piece of it.
What’s next for investors?
While the lower valuation of WELL stock is enticing, long-term investors should find comfort knowing that the company is also part of a recession-proof industry. The ongoing pandemic accelerated the adoption of digital health services, driving revenue growth at an astounding pace for WELL Health and its peers.
WELL Health is already the single largest chain of primary healthcare clinics in British Columbia, and its recent acquisition of CRH Medical will help the company gain traction in the U.S. as well. The company has over 1,000 healthcare practitioners working in its lines of business, and it owns several significant telehealth and EHR platforms that position it to be top three in both telehealth and EHR categories in Canada.
CRH will be highly accretive to WELL Health as it is expected to generate sales of US$150 million and a free cash flow of US$40 million in 2021. Part of the CRH Medical acquisition included JP Morgan increasing its credit line by US$100 million to US$300 million, such that the company may continue to grow via M&A activity in 2021 and beyond.
We believe WELL is a unique and accessible opportunity for investors to acquire via its TSX listing in advance of the upcoming NASDAQ listing. WELL’s multiples are sure to grow, as it accesses the U.S. markets, where multiples are generally more than 50% higher than WELL’s current trading multiple. WELL will be favourably compared against similarly sized companies in the tech-enabled healthcare space.