Canadian equity markets have rebounded strongly over the last few weeks amid easing recession fears, with the S&P/TSX Composite Index rising 9.9% higher this year. Amid improving investors’ optimism, let’s assess which of WELL Health Technologies (TSX:WELL) and Docebo (TSX:DCBO) would be a better tech stock to buy now based on their recent quarterly performances and growth prospects.
WELL Health Technologies
Earlier this month, WELL Health reported an impressive second-quarter performance, with its top line growing by 42% to $243.1 million. An organic growth of 21% and acquisitions over the last four quarters drove its sales. It witnessed solid performances across its three segments. During the quarter, it had 1.4 million patient visits and 2.1 million patient interactions, representing a year-over-year growth of 38% and 48%, respectively.
Amid the top-line growth, its adjusted gross profits increased by 18% to $107.4 million. However, its gross profit margin declined from 53.1% to 44.2% amid the acquisition of lower-margin businesses. Further, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased by 11%, while adjusted EBITDA to WELL shareholders grew by 3%. It also generated $35.2 million of cash from its operations, thus helping it to pay off $14 million of debt, lowering its leverage ratio to 2.67.
Meanwhile, I expect the uptrend in WELL Health’s financials to continue amid its expanding addressable market and growth initiatives. The increased usage of virtual services, digitization of patient records, and adoption of software solutions in the healthcare segment have expanded its addressable market. The company is implementing advanced artificial intelligence tools, patient engagement technologies, and digital workflow integration, which could grow its market share and drive its financials in the coming years. It has also adopted several cost-cutting initiatives, which could improve its profitability.
Docebo
Docebo also reported an impressive second-quarter performance earlier this month, beating its guidance. Its topline grew by 22% to $53.1 million. The addition of 307 customers over the last four quarters and an increase of 9.7% in its average contract value drove its financials. Supported by its top-line growth, its adjusted EPS (earnings per share) grew by 85.7% to $0.26. The company also generated free cash flows of $8.45 million during the quarter, representing a 20% year-over-year increase.
The usage of digital learning tools in academics and businesses is growing, thus expanding Docebo’s addressable market. Meanwhile, the company is introducing artificial intelligence-powered features to enhance its customers’ experience. The company has signed long-term agreements with its customers, providing financial stability. Amid its solid second-quarter performance and growth initiatives, the company’s management expects its 2024 top line to grow 18-19% while its adjusted EBITDA margin could be around 15-15.5%.
Investors’ takeaway
Supported by its solid performances, WELL Health is up 19.2% this year, outperforming the broader equity markets. Despite its strong returns, the company trades at an attractive valuation, with its next-12-month price-to-earnings multiple at 16.8.
Meanwhile, Docebo has underperformed the broader equity markets this year, with its stock price losing 9.1%. Despite the decline in stock price, the company’s valuation looks expensive, with its NTM price-to-earnings multiple standing at 38.2. Although both companies offer high growth prospects, I am more bullish on WELL Health due to its cheaper valuation.
