Down 15% Since Earnings: Is WELL Health a Good Stock to Buy?

Despite the near-term weakness, WELL Health offers excellent buying opportunities for long-term investors, given the expanding addressable markets and attractive valuation.

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WELL Health Technologies (TSX:WELL) is a tech-enabled healthcare company that focuses on technologies and services to aid healthcare providers in improving patient outcomes. Last month, the company reported underwhelming fourth-quarter earnings, with its adjusted net income declining by 10%. The company’s lower-than-expected 2024 guidance weighed on its stock price. It has lost 14.6% of its stock value since reporting its fourth-quarter earnings and is trading at a discount of 40% compared to its 52-week high.

So, let’s assess whether the recent correction offers any buying opportunities in the stock by looking at its recent performance and growth prospects.

WELL’s fourth-quarter performance

In the fourth quarter, WELL Health’s revenue grew 48% to $231.2 million. The acquisitions over the last four quarters, solid organic growth in its virtual businesses, and higher patient visits at its primary care drove its top line. Amid the top-line growth, its gross profits increased by 26%. However, its gross margins fell 760 basis points to 43.7% amid increased lower-margin recruitment-related revenue.

Meanwhile, the company’s net income increased from $22.1 million to $33.8 million. However, after removing special items, its adjusted net income stood at $11.16 million, representing a 10.7% decline from the previous year’s quarter. Also, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $30.8 million, a 13% increase from the previous year’s quarter. The company ended 2023 with cash and cash equivalents of $43.4 million, representing an 11.2% decline from the prior year’s quarter. Now, let’s look at its growth prospects.

WELL’s growth prospects

The digitization of clinical procedures and the growing popularity of virtual healthcare services have created a multi-year growth potential for WELL Health. Meanwhile, the Vancouver-based company has continued its expansion by signing an agreement to acquire 10 primary care medical clinics in Ontario and British Columbia from Shoppers Drug Mart. The acquisitions could add around $8 million to its annual revenue. Earlier, the company had acquired Proack Security and Cycura, strengthening its capabilities to safeguard sensitive data and maintain robust security systems.

Besides, WELL Health is investing in AI (artificial intelligence) technology to develop new products and services that could enhance patients’ experience, thus driving organic growth. Along with these initiatives, the company also focuses on improving its profitability. So, it has implemented a cost-optimization program to improve its operational efficiency and drive profitability. Meanwhile, WELL Health has also strengthened its financial position by refinancing a credit facility of $300 million at favourable terms. So, it is well-equipped to fund its growth initiatives. The company expects to lower its debt levels, leverage ratio, and interest expenses this year. So, these initiatives could boost its financials.

Meanwhile, WELL Health’s management expects its top line to be $950-$970 million this year, with the midpoint representing a 24% increase from the previous year. Amid top-line growth, its adjusted EBITDA could grow 15%.

Investors’ takeaway

Amid the recent selloff, WELL Health’s valuation has declined to enticing levels, with its NTM (next-12-month) price-to-sales and NTM price-to-earnings multiples at 0.9 and 12.8, respectively. Despite the near-term weakness, I believe investors with a longer investment horizon can start accumulating the stock to earn superior returns in the long run. 

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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