Down Over 35%: Is WELL Health Technologies a Buy at These Levels?

Given its healthy growth prospects and attractive valuation, WELL Health would be an excellent buy for long-term investors.

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WELL Health Technologies (TSX:WELL) is a tech-enabled healthcare company that focuses on developing products and services to aid healthcare providers in delivering positive patient outcomes. The company has been under pressure over the last few months as it posted higher net losses during the third quarter. Besides, the weakness in the broader equity markets has also contributed to the sell-off. The company trades at an over 35% discount compared to its 52-week high. So, let’s assess whether the steep correction provides an attractive buying opportunity in the stock by looking at its recent performance and growth prospects.

WELL Health’s third-quarter earnings

In the September-ending quarter, WELL Health Technologies reported revenue of $204.5 million, representing a 40.2% increase from the previous year. The growth across its three segments, Canadian Patient Services, USA Patient Services, and SaaS and Technology Services, boosted its topline. Amid the topline growth, its gross profits increased by 20.5% to $94.2 million. However, its gross profit margin contracted from 53.6% to 46.1%.

Besides, the company incurred net losses of $4.48 million, a substantial increase from $2.02 million in the previous year’s quarter. However, removing special items, its adjusted net income stood at $12.8 million, an 11.1% decline compared to the prior year’s quarter. It also generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $28.2 million, an increase of 2.6% from the last year. Also, the company strengthened its financial position by lowering its net debt-to-shareholders adjusted EBITDA ratio to 2.6 from 2.9.

Now, let’s look at its growth prospects.

WELL Health’s growth prospects

The digitization of clinical procedures and growing adoption of virtual healthcare services are expanding the addressable market for WELL Health. Meanwhile, the company continues to grow its footprint and is currently working on acquiring 13 clinics through absorption and 30 clinics through mergers and acquisitions. Besides, it is also developing innovative products and AI-powered (artificial intelligence) tools to strengthen its position and expand its customer base.

Notably, the Vancouver-based company is focusing on reducing its physician and clinic acquisition costs to improve its profitability. It is streamlining and cost-optimizing its operations to enhance efficiency and boost its cash flows.

Meanwhile, the company reported record patient visits and patient interactions of 1.22 million and 1.87 million in the fourth quarter, respectively. Both metrics represent an 18% increase from the previous year. Double-digit organic growth and contributions from acquisitions over the last four quarters boosted its patient visits. The management expects record revenue in the fourth quarter amid this solid operating performance. Also, EPS (earnings per share) and adjusted EPS could be positive. Further, management expects revenue to cross $900 million this year, representing 18.4% growth from 2023 guidance. So, its outlook looks healthy. 

Bottomline

Amid the recent sell-off, WELL Health’s valuation has declined to attractive levels. WELL currently trades at 1.6 times projected sales for the next four quarters and 16.6 times projected earnings for the next four quarters. Given its healthy growth prospects and attractive valuation, I believe WELL Health would be an excellent buy for investors with investment horizons over three years.

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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