Despite the volatility, the Canadian equity markets ended last year in green, with the S&P/TSX Composite Index rising over 8%. WELL Health Technologies (TSX:WELL) outperformed the broader equity markets last year by delivering returns of 35.6%. Its solid quarterly performances and excellent growth prospects drove its stock price. Despite the increase in stock price, it trades at around a 60% discount compared to its all-time high. So, let’s assess whether the stock would be a buy at these levels by looking at its recent performance and growth prospects.
WELL’s third-quarter performance
In November, WELL Health reported its third-quarter performance, with its revenue growing by 40.2% to $204.5 million. The strong performances across its three segments, the Canadian patient services, United States patient services, and SaaS and Technology services, drove its top line. It had around 1.03 million patient visits and 1.58 million patient interactions during the quarter.
Meanwhile, its gross profits increased by 20.5% while its gross profit margin contracted from 53.6% to 46.1%. The acquisition of CarePlus increased its recruitment revenue, which is of a lower margin than its revenue from other patient services and virtual services, thus leading to a contraction in its gross margins. Further, the company reported a net loss of $4.5 million during the quarter. However, removing special items, its adjusted net income stood at $12.8 million, a decline of 13.5% from $14.8 million from the previous year’s quarter. Higher SG&A (selling, general, and administrative) expenses and increased interest costs dragged its adjusted net income down.
Now, let’s look at its growth prospects.
WELL’s growth prospects
WELL Health is investing in artificial intelligence (AI) to develop innovative products that can meet the needs of healthcare professionals. The company recently launched “WELL AI Decision Support,” which would help in the early diagnosis of diseases. Further, the company has also launched WELL AI Inbox Admin, which could optimize clinical operations. The company has a solid product pipeline that can leverage AI’s power to enhance clinic productivity and improve patient outcomes.
The company is continuing its expansion strategy. It recently acquired Seekintoo and Proack Security, which could help safeguard its sensitive data while offering robust security across healthcare and corporate networks. Further, the company could also benefit from the growing adoption of virtual healthcare services. Given its healthy growth prospects, WELL Health’s management projects its 2024 revenue to be at $900 million, representing an 18.4% increase from the midpoint of 2023 guidance. So, the company’s outlook looks healthy.
Investors’ takeaway
WELL Health Technologies has been under pressure since reporting its third-quarter performance, as investors are worried about the decline in its adjusted net income. It has lost around 10% of its stock value while dragging its valuation down. The company trades at NTM (next-12-month) price-to-earnings and NTM price-to-sales multiples of 13.4 and 1, respectively. Given its high growth prospects, its valuation looks cheap, especially with its top line projected to grow in double digits.
Meanwhile, analysts also look bullish on the stock, with 10 of the 11 issuing a buy rating. The remaining analyst has given a hold rating. The mean target price of these analysts is $7.92, representing a 109.5% increase from its current price. So, I believe WELL Health is an excellent buy.
