When it comes to investing in high-potential growth stocks, especially smaller, less established businesses, it’s essential to find a handful of top picks to ensure you’ve diversified your capital adequately. Luckily for investors, there are a tonne of opportunities on the TSX, such as a stock like WELL Health Technologies (TSX:WELL).
Buying stocks with significant potential is an excellent strategy because they can provide years of capital gains. This is why many of the top growth stocks are smaller-cap stocks with a longer runway for growth.
In WELL’s case, the stock has a market cap of just $925 million. And because it’s a tech stock that serves the healthcare industry, it has attractive growth potential but is also more defensive than many other tech stocks.
So let’s look at why exactly WELL Health is such a high-quality growth stock, and why below $4 a share, WELL is a no-brainer buy.
Why is WELL Health a top growth stock to buy?
As I mentioned above, one of the key reasons WELL is such an attractive stock is that it offers significant growth potential as a tech stock but also serves a defensive industry like healthcare.
Furthermore, the businesses it owns, and services it offers, such as digital health apps and telehealth businesses, only continue to become more popular, especially as consumers are increasingly valuing time-saving and convenient options for their everyday tasks.
And while the stock saw plenty of growth throughout the pandemic, it has continued to grow at an attractive pace even after the pandemic, with a mix of both organic growth and acquisitions.
For example, for the full 2023 year, analysts estimate that WELL’s revenue grew by over 33% after seeing revenue jump by 88% in 2022.
Going forward, with WELL continuously acquiring more clinics in Canada and instituting a company-wide cost optimization strategy aimed at enhancing operational efficiency and increasing cash flow, it should continue to see its margins and, consequently, its profitability rise.
The stock only became profitable recently but is already seeing a rapid increase in both its earnings before interest, taxes, depreciation and amortization (EBITDA) and earnings per share (EPS). So as WELL Health stock continues to grow its sales and works to cut costs and improve margins, there should be a significant increase in profitability over the coming years.
For example, while analysts predict EBITDA and normalized EPS in 2023 of $113 million and $0.24, respectively, both are expected to increase significantly in 2024. Right now, analysts predict WELL’s 2024 EBITDA will jump by over 14% to $130 million. And EPS is expected to jump by more than 25% to $0.30.
How cheap is WELL trading?
With WELL Health stock hovering around $4 a share and analysts predicting it can generate normalized EPS of $0.30 next year, WELL is trading exceptionally cheap at just 13.3 times its forward earnings.
That’s considerably cheap for a high-potential growth stock, especially one like WELL that has consistently outpaced analyst estimates and demonstrated its ability to meet its own goals.
WELL is also trading at a forward price-to-sales (P/S) ratio of just 1.1 times, less than half of its three-year average P/S ratio of 2.7 times.
Therefore, considering one of the main reasons WELL trades so cheaply is the market environment and all the uncertainty, it’s easily one of the best stocks to buy now.
Not only does it have significant growth potential for years, but this massive discount in share price certainly won’t last forever. So while WELL Health stock trades so cheaply, it’s an enticing investment to consider today.
