Why WELL Health (TSX:WELL) Stock Surged 14% This Week

WELL Health Technologies (TSX:WELL) stock seems like a fairly valued growth opportunity for the foreseeable future.

| More on:

Medical technology company WELL Health Technologies (TSX:WELL) has had an incredible year. The stock is up 420% from last Christmas and has surged another 14% just this past five days. 

For early investors, this has been one of the most lucrative opportunities on the Canadian stock market this year. However, the stock seems to be performing exceptionally well in recent weeks. Here’s why momentum seems to be building up. 

Lockdown winter

Vast swathes of the country are under severe lockdown and families remain confined to their homes. While essential services such as pharmacies and clinics remain open, families could turn to virtual clinics and telehealth services to be cautious, driving adoption for WELL Health’s VirtualClinic+ earlier this year. 

Users on the platform jumped tenfold as more people adopted this convenient technology. Now, the company offers more services and has even entered the U.S. market. As lockdowns persist, adoption could continue at this pace. 

Rival companies emerge

It isn’t just WELL Health stock that’s been outperforming this year. American rivals Teladoc and Livongo had a great year too. In fact, they both merged in October. A month earlier, Amwell, another telehealth company, went public on the New York Stock Exchange. 

Here in Canada, CloudMD listed on the Toronto Venture Exchange in June. While the emergence of these rivals magnifies the pressure on WELL  Health, it also offers investors a frame of reference to value the sector. That makes WELL Health’s relative valuation more robust. 

Seeing capital pour into the sector vindicates the business model. There is certainly enough demand for virtual clinics and online pharmacies that even Jeff Bezos is getting involved, giving investors confidence that companies like WELL Health are fairly valued when compared to its peers.

WELL Health stock valuation

Currently, WELL Health stock is trading at an all-time high of $8.12. That implies a market capitalization of $1.3 billion. Meanwhile, the company generates revenue at an annual run rate of $68 million. 

Assuming the company can expand revenue next year at the same pace as it has this year, I believe the run rate could be $130 to $150 million by next Christmas. That means WELL Health stock is trading at a forward price-to-sales ratio of 8.7 to 10. I believe that is fair for a company with gross margins above 38% and triple-digit growth prospects. 

Bottom line

WELL Health stock has had an incredible run this year. The company graduated from the Toronto Venture Exchange to the main board in January while it was still an obscure little medtech firm. Now, WELL Health is arguably one of the most popular tech stocks in the market.

The fact that we’re still living through a global health crisis and are confined to our homes means telehealth should see more traction in the next few months. Meanwhile, the emergence of serious competitors gives us a frame of reference for WELL Health’s valuation.

In short, WELL Health seems like a fairly valued growth opportunity for the foreseeable future.

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 Vishesh Raisinghani owns shares of WELL. The Motley Fool owns shares of and recommends Teladoc Health.

More on Tech Stocks

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

An investor uses a tablet
Tech Stocks

Canadian Tech Stocks to Buy Now for Future Gains

Not all tech stocks are created equal. In fact, these three are valuable options every investor should consider.

Read more »

dividend growth for passive income
Tech Stocks

2 Rapidly Growing Canadian Tech Stocks With Lots More Potential

Celestica (TSX:CLS) and Constellation Software (TSX:CSU) are Canadian tech darlings worth watching in the new year.

Read more »

BCE stock
Tech Stocks

10% Yield: Is BCE Stock a Good Buy?

The yield is bigger than it's ever been in the company's history. That might not be a good thing.

Read more »

Happy shoppers look at a cellphone.
Tech Stocks

So You Own Shopify Stock: Is it Still a Good Investment?

Shopify (TSX:SHOP) stock has had a run, but there's still room to the upside.

Read more »

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »