Why WELL Health Fell 11% on Thursday

WELL Health (TSX:WELL) stock had a huge climb and an even larger fall. And that fall continued this week after missing estimates.

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WELL Health Technologies (TSX:WELL) had a rough end to the week as the company reported its full-year results. And those results weren’t what investors were hoping for. Despite reaching record revenue, the company saw shares fall 11% on March 21. So, let’s see what happened, and what the company will need to do to recover.

What happened?

First the good news. WELL Health stock achieved record-breaking annual revenue at $776.1 million. This was a 36% increase from the year before, with quarterly revenue hitting $231.2 million in the fourth quarter, up 48% from 2022 levels.

The company also achieved record annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at $113.4 million. This was up 8% from the year before, with the fourth quarter seeing a 13% increase as well.

WELL Health stock stated that the growth came from notable performance in its Canadian operations. The company also reported record net income, with $33.8 million at the end of the year in the fourth quarter and $16.6 million in total for 2023.

So, with all this positivity, what didn’t investors like?

An underwhelming outlook

WELL Health stock also provided an outlook for 2024, and while positive, it perhaps wasn’t exactly what investors were hoping for. The company expects annual revenue between $950 and $970 million for 2024, with adjusted EBITDA between $125 and $130 million. So, this would indeed achieve year-over-year growth. However, it fell below estimates, as did earnings per share (EPS) by quite a large margin.

The company is also seeking to focus more on organic growth rather than acquisitions, reducing capital in that area. It’s also looking to go through some cost-cutting measures and operational efficiencies. Furthermore, if the company needs to make cuts, it could mean that there is pressure on future performance. So, overall, investors wanted more, didn’t get it, and may now have concerns over the future.

What it will take to recover

When it comes to recovering its share price, WELL stock may have quite a lot of moves it needs to make. Record revenue isn’t enough. The company needs to put that cash to good use, paying off debts and putting itself in a financially strong position.

What’s more, it needs to deliver on its initiatives. This would include the operational efficiencies and cost optimization measures. However, it would also include delivering on technological initiatives, such as its artificial intelligence products.

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All of these are exciting opportunities, but WELL Health stock may also want to take a page from other tech stocks. Companies that have focused on what made them a success in the first place. In the case of WELL Health stock, the company started out as a digital file provider for healthcare workers. It then expanded into telehealth. Both areas have seen huge success.

So, instead of remaining on the artificial intelligence trend, analysts may identify its lucrative businesses from before as areas for growth. At $4 per share or less, the company could be a steal at these prices should it make the right moves. 

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 Amy Legate-Wolfe has positions in Well Health Technologies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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