Better Buy: WELL Health Stock or Docebo?

I am more bullish on WELL Health than Docebo due to its cheaper valuation and high growth prospects.

Rajiv Nanjapla

Rajiv Nanjapla has been with Motley Fool Canada since July 2020. He has over eight years of experience in analyzing financial statements and writing financial research reports. His area of interest includes cannabis, retail, technology, and energy. He also holds a post-graduate diploma in finance and operations.

Published January 25, 2023 4:00 pm EST

| More on: DCBOWELL

Growth stocks generally grow their financials at a higher rate than the industry average, thus delivering superior returns. However, these companies require higher capital to fund their growth. So, the rising interest rates and recession fears have made investors skeptical, thus leading to a selloff last year.

Yet, with the beginning of the new year, investors’ optimism appears to have returned. Growth stocks are witnessing healthy buying. With the focus returning to growth stocks, which among WELL Health Technologies (TSX:WELL) and Docebo (TSX:DCBO) would be a good buy right now? Let’s compare their recent performances, growth prospects, and valuations.

WELL Health Technologies

WELL Health is a digital healthcare company that allows healthcare practitioners to provide virtual healthcare services through its platform. Despite broader economic headwinds, the company delivered solid financials last year. Supported by strategic acquisitions and robust growth in its virtual services, its revenue grew by 121% in the first nine months of 2022. Virtual services accounted for 33% of its revenue compared to 24% in the corresponding period of the previous year.

With the growth in higher-margin virtual services, WELL Health’s margins also expanded, driving its bottom line, which grew by 559%. It also generated an adjusted EBITDA (earnings before interest, depreciation, tax, and amortization) of $77.4 million during the three quarters.

Meanwhile, I expect the upward momentum to continue amid the growing popularity of telehealthcare services and the expansion of the company’s footprint in the United States and Canada. Markets and Markets projects global telehealthcare services to grow at an annualized rate of 26.6% through 2030. So, the company’s outlook looks healthy.

Meanwhile, WELL Health has outperformed the broader equity markets this year, with returns of 16.6%. Despite the recent increase, it still trades at a discount of over 40% compared to its 52-week high, while its NTM (next 12 months) price-to-sales multiple stands at an attractive 1.2.

Docebo

Docebo is a Canadian software company offering learning management solutions (LMS) worldwide. Supported by its expanding customer base and average contract value, the company has grown its top line at an annualized rate of 59.7% since 2016. The uptrend continued in 2022 as well, with its revenue growing by 40% to $104 million in the first nine months. Its adjusted EBITDA losses have declined from $6.5 million to $0.97 million, with the company reporting a positive adjusted EBITDA of $0.6 million in the third quarter.

The LMS market is expanding amid the increased adoption of digital tools across various sectors. Meanwhile, Fortune Business Insights projects the global LMS market to grow at an annualized rate of 14.2% through 2029 to reach US$40.95 billion. Given its highly configurable artificial intelligence-powered platform, the company is well-positioned to benefit from market expansion. Also, its innovative product launches and multi-year contracts with clients could boost its growth in the coming years.

However, amid the weakness in growth stocks, Docebo has lost over 34% of its stock value compared to its 52-week high while trading at 6.9 times its projected sales for the next four quarters.