When it comes to investing, some of the highest potential growth stocks you can buy are those in the tech sector. Even a tech stock that serves the healthcare sector, such as WELL Health Technologies (TSX:WELL), has shown it has tremendous potential to grow both its sales and profitability rapidly, which is why it’s one of the most intriguing stocks on the market.
For many tech stocks, the technology they create is their biggest investment and cost. And once programs and applications have been built, the variable cost of adding more customers and growing the business’s operations is minimal, allowing these stocks to see a rapid increase in profitability.
Furthermore, WELL has shown its ability to grow both organically and through strategic acquisitions. This allows it to expand its customer base and find synergies in its many different telehealth businesses and apps to continue to expand its profitability.
Even with its impressive performance through the pandemic, though, and now its consistent ability to grow its sales and earnings, the stock price has been struggling for WELL Health, creating a significant opportunity for investors to buy the high-potential stock while it trades unbelievably cheaply.
So, let’s look at where WELL Health stock could be in three years and how compelling of an investment the stock is today.
The recent history of WELL Health Technologies
When WELL Health stock initially caught the attention of most investors, it was amidst the pandemic when its business operations were getting a significant boost.
Not only was there increased demand for healthcare services during the pandemic, but WELL’s telehealth business and digital health apps were perfectly suited for the social-distancing environment.
So, although WELL has continued to make impressive acquisitions over the last few years and has consistently grown both its patient numbers and its revenue, the stock has been under pressure for some time now.
Part of this could be due to the fact that interest rates are high, and tech stocks historically face more significant headwinds when the cost of capital is high.
However, at the same time, while WELL Health is a tech stock, it also serves the healthcare sector, making its operations considerably defensive and its significant discount in the share price so perplexing.
It’s worth noting that with the election south of the border scheduled for later this year, there is certainly some uncertainty when it comes to healthcare legislation in the United States. However, even with uncertainty about the healthcare sector and higher interest rates, WELL Health stock still trades so cheaply that it can’t be ignored.
How cheap is WELL Health stock trading?
With WELL Health stock currently trading around $3.80, that’s a forward price-to-earnings (P/E) ratio of just 13.7 times. That’s ultra-cheap for a high-potential tech stock.
For comparison, an ultra-safe utility with minimal growth potential compared to WELL, like Fortis, trades at 17.7 times earnings. Meanwhile, a tech stock like Shopify trades at 78 times earnings.
Now, obviously, Shopify is a superstar. It’s a large cap and has a longer track record of growth than WELL Health, but even still, trading at only 13.7 times its forward earnings is exceptionally cheap.
Even with its unbelievable discount, though, predicting where WELL Health stock could go in the next few years depends mainly on two things: how it performs and the market environment.
This year, it’s expected to generate just over $900 million in sales and normalized earnings per share (EPS) of $0.30. By 2025, sales are expected to grow another 10% to roughly $1 billion. Meanwhile, as it continues to scale its business, analysts expect that in 2025, its normalized EPS will grow by more than 50% to $0.47.
So, assuming WELL can keep up this impressive performance, the stock has tremendous upside in the coming years.
Even in a market environment similar to today, where it trades at just 13.7 times forward earnings, WELL Health stock could be worth over $6.40 in the next couple of years. That’s a more than 65% return to where WELL trades today, and that’s only based on its expected earnings in 2025.
So, if you’re looking for ultra-cheap growth stocks to buy in this environment, WELL Health is certainly one of the best to consider.
