Up 42%, Is Now the Time to Buy WELL Health Stock?

WELL Health (TSX:WELL) stock is now up by 42% in the last year, but more growth could be on the way.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published July 9, 2024 3:30 pm EDT

Despite its strong performance and growth potential, WELL Health Technologies (TSX:WELL) stock is considered undervalued by analysts. In fact, shares are already up for the telehealth stock by 42% from 52-week lows. So, let’s get into whether now is the time to buy.

Nurse talks with a teenager about medication — Source: Getty Images

What happened?

Shares of WELL Health Technologies have been climbing recently due to several positive developments. WELL Health reported record quarterly revenues of $231.6 million in the first quarter (Q1) of 2024, alongside an increase in annual revenue guidance to between $960 and $980 million. This strong financial performance has bolstered investor confidence.

The company has improved its profit margins and achieved positive earnings per share. This reflects effective cost management and growth through both organic means and acquisitions. WELL Health’s acquisitions, including CRH Medical, have significantly boosted its revenue and free cash flow, supporting further growth initiatives.

The company has also raised its annual revenue guidance for 2024 to between $960 and $980 million, reflecting continued confidence in its growth trajectory. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter was $28.3 million, an increase of 6% year over year. Upcoming estimates for Q2 2024 include expected earnings per share (EPS) of $0.06. WELL Health’s next earnings report is anticipated on Aug. 8, 2024.

What’s the issue?

So, why aren’t shares surging? The top issue for WELL Health, according to analysts, is the company’s recent financial performance and cost management. Specifically, analysts have noted concerns regarding the impact of the acquisition of MCI clinics and the large Winnipeg clinic, which have led to lower margins and higher operating costs. This has caused some analysts to lower their earnings guidance for FY24.

However, despite these challenges, analysts remain optimistic about the company’s long-term growth potential due to its focus on leveraging artificial intelligence and proprietary data for future opportunities, as well as its efforts to reduce debt and improve financial stability through free cash flow.

In fact, WELL Health is at the forefront of the digital transformation in the healthcare sector. The company has invested heavily in artificial intelligence and proprietary data technologies, which are anticipated to drive future growth and improve healthcare delivery. Its focus on digitizing healthcare processes and addressing market fragmentation positions it well to capitalize on industry trends.

What’s more, the company has made significant strides in improving its profit margins and financial stability. Recent reports highlight a reduction in operating losses and an increase in adjusted EBITDA. These financial improvements are expected to continue, with analysts projecting a narrowing of losses and an increase in cash flows.

Bottom line

Overall, WELL Health stock is considered undervalued by analysts. It trades at a low price-to-sales ratio compared to its peers. Analysts predict that the stock could more than double in the next 12 months. This should provide substantial upside potential for investors. So, with shares on the rise, consider it on the TSX today.