The Canadian equity markets are upbeat, with the S&P/TSX Composite Index touching a new high on Wednesday. As of Thursday’s closing price, the index is up 10.7% year to date. The solid retail sales numbers and lower jobless claims in the United States, as well as Canada’s initiatives to strengthen its ties with emerging markets and protect local sectors, have improved investors’ confidence, driving its equity markets higher. Additionally, business sentiments have improved, with business owners now less pessimistic about a recession this year.
However, WELL Health Technologies (TSX: WELL) and Docebo (TSX: DCBO) have failed to impress investors and are trading at substantial discounts compared to their respective 52-week highs. Meanwhile, let’s examine their recent performances and growth prospects to determine which of these two discount stocks would be the better long-term buy.
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WELL Health Technologies
WELL Health Technologies is a tech-enabled healthcare company that aids healthcare practitioners in delivering positive patient outcomes. The company has been under pressure this year due to a decline in its first-quarter adjusted net income and the announcement of the investigation into the billing practices of WELL Health’s U.S. subsidiary, Circle Medical. It is down over 36% from its 52-week high.
Meanwhile, WELL Health achieved 1.6 million patient visits in the recently reported first quarter, representing a 23% increase from the same quarter in the previous year. Its top line grew 32% to $294.1 million, driven by both organic growth and acquisitions. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) also increased by 36% to $27.6 million. However, its adjusted net income fell from $17.2 million to $7.5 million. The decline was primarily due to $11.3 million gain on the sale of Intrahealth in the previous year’s quarter. Also, Circle Medical’s deferred revenue adjustments impacted its adjusted net income.
Meanwhile, the growing popularity of virtual healthcare services and the digitization of clinical procedures have created long-term growth prospects for WELL Health. The techhealth company has continued its expansion by acquiring two clinics earlier this month, which can add $12 million to its annualized revenue and $3 million in adjusted EBITDA. Additionally, it has a solid acquisition pipeline comprising 124 clinics, which can contribute $370 million in annualized revenue and $50 million in adjusted EBITDA. Therefore, the company’s growth prospects look healthy.
Docebo
Docebo, which offers a highly customizable learning platform for businesses worldwide, has been under pressure this year due to rising competition and expectations of growth slowing down. The company has lost 43% of its stock value compared to its 52-week high.
However, the company had reported a healthy first-quarter performance, with its top line and adjusted earnings per share growing by 11% and 16.7%, respectively. It generated $9 million of free cash flows and ended the quarter with cash and cash equivalents of $91.9 million. Therefore, the company is well-positioned to fund its growth initiatives.
Given the accessibility, cost-effectiveness, rise in remote working, and technological advancements, the Learning Management Solutions market continues to grow, thereby creating long-term growth potential for Docebo. Meanwhile, the company continues to invest in artificial intelligence to develop innovative products and also drive operating efficiencies. These growth initiatives, along with an expanding customer base, growing average contract value, and its multi-year agreements with customers, could continue driving its financial performance in the coming years.
Investor takeaway
Amid the recent pullback in their stock prices, the valuations of both WELL Health and Docebo have declined. Currently, WELL Health trades at NTM (next-12-month) price-to-sales and NTM price-to-earnings ratios of 0.8 and 10.7, respectively. Meanwhile, Docebo’s NTM price-to-sales and NTM price-to-earnings ratios have declined to 3.8 and 26.1, respectively. Although both companies offer healthy growth prospects, I am more bullish on WELL Health due to its cheaper valuation.
