Nobody wants to see a popular stock fall from its glory, yet Well Health Technologies Corp (TSX:WELL) has undoubtedly seen better days. The stock has declined around 50% from its peak in 2021, and while the company has seen some recovery in recent months from its low seen last year, this is a stock which continues to carry significant volatility, leading many investors to seek out more stable growth stocks in this current macro environment.
There are plenty of bullish investors out there looking to make the case that Well Health could have what it takes to rebound nicely from here, and potentially post new all-time highs. I’ve discussed the bull case on this stock before.
But I thought I’d take a look into the factors that drove WELL stock to current levels and what some of the concerns around this company are. Let’s dive into why this particular digital healthcare company has dropped so much, and where it could be headed from here.
Source: Getty Images
Concerns abound
As many post-pandemic darlings have seen, many of the catalysts the Covid-19 pandemic brought have since waned. Well Health’s digital healthcare focus, leveraging technology to improve healthcare outcomes for providers and patients, was certainly in high demand during the peak of the pandemic. However, as many in-person offerings have come back online, overall demand for telemedicine and virtual care services has declined. Accordingly, it should be no surprise to see WELL stock among the more beaten-down names from the peak pandemic period.
The company’s recent earnings report did bring about profitability, with this former high-flyer now trading at a price-earnings ratio of just 7 times. That’s cheap, and there’s certainly a value argument that can be made for this company. Indeed, those waiting for the company to turn profitable have gotten their wish, so there’s got to be more at play with the stock’s lagging price.
One of the key contributors to a relatively low multiple appears to be the rather large contributions that have come from unusual items. These accounting-related contributions are hard to parse out, and some analysts appear to be having difficulty determining a more “true” run rate for Well Health’s earnings growth. Thus, it appears uncertainty is the keyword here. The market doesn’t like uncertainty.
Could a recovery be brewing for Well Health?
In my view, Well Health’s recent surge into profitability and rather strong recent earnings reports (irrespective of whether these results were due to one-time events or not) could certainly pave the way for more investor capital to flow into this name. I’d argue that virtual healthcare services really are the future of this space. And whether we’re talking about the Canadian or U.S. healthcare systems, plenty more capital is going to need to be invested in this space to improve efficiency and throughput times. No one wants to have to wait months to see a provider, but that’s the current state of the system.
Over the long term, Well Health will have to battle competitive threats, as this space continues to grow at what I expect will be a faster-than-market rate in the healthcare space. But I also think Well Health is well positioned at least in the Canadian market to compete.
If Well Health can continue to prove that its recent earnings reports weren’t flukes, this is a stock that could have big upside from here. However, the company will have to prove this thesis over a longer timeframe. Herein lies the potential opportunity for investors looking to add risk right now.
