WELL Health Technologies (TSX:WELL) is a tech-enabled healthcare company that develops products and services to aid healthcare providers in delivering positive patient outcomes. It also operates a portfolio of clinics delivering healthcare-related services. With its solid first-quarter performance, the company’s announcement of an automatic share-purchase plan that could lower its share count by 2.5% has improved investors’ sentiments, driving its stock price higher. The company trades over 23% higher year to date, outperforming the broader equity markets.
Let’s assess whether the uptrend in the stock could continue by looking at its first-quarter performance and growth prospects.
WELL Health’s first-quarter performance
WELL Health has posted a solid first-quarter performance, with its top line growing by 37% amid organic growth and strategic acquisitions. During the quarter, the revenue from Canadian Patient Services and WELL Health USA Patient and Provider Services segments grew by 49% and 42%, respectively. However, the revenue from its SaaS and Technology Services segment fell 20% amid the sale of Intrahealth, thus offsetting some of the growth.
The company had around 1.3 million patient visits during the quarter, representing a 34% year-over-year growth. It had 733,000 patient visits in Canada and 577,000 in the United States. Meanwhile, the company’s gross margin contracted from 50.9% to 44.1% in the March-ending quarter due to the acquisition of lower-margin businesses. However, its adjusted EPS (earnings per share) grew 33.3%. It generated around $19.06 million of cash from operating activities, thus raising its cash and cash equivalents to $48.23 million by the end of the first quarter.
Now, let’s look at its growth prospects.
WELL Health’s growth prospects
Clincs’ adoption of healthcare management software solutions and digitization of patient records to improve the efficiency and quality of integrated healthcare services has expanded WELL Health’s addressable market. The company has been investing in artificial intelligence to develop innovative products that could aid healthcare practitioners in the early diagnosis of various diseases.
Further, the telehealthcare market is expanding at a healthier rate amid rising adoption, development of innovative products and services, growing internet penetration, and accessibility. Given its innovative product offerings and services, WELL Health is well-positioned to benefit from the telehealthcare market expansion. Also, the company is making strategic partnerships and continuing with acquisitions that could boost its topline in the coming years.
Along with these growth prospects, WELL Health has adopted a cost-optimization program, including staff restructuring and integrating acquired entities to enhance operational efficiency and profitability.
Meanwhile, after posting its first-quarter earnings, WELL Health’s management raised its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) guidance for this fiscal. The management projects its 2024 revenue to come within $960-$980 million, with the midpoint representing a 25% year-over-year growth. The management expects its adjusted EBITDA and free cash flows to grow by 12.4% and 29.7%, respectively. Considering all these factors, its growth prospects look healthy.
Investors’ takeaway
Despite the recent healthy buying, WELL Health trades at a 48% discount compared to its 2021 high. Besides, its valuation looks attractive, with the company trading at 1.2 times analysts’ projected sales for the next four quarters and 18.3 times projected earnings. Given its long-term growth prospects and cheaper valuation, I believe WELL Health would be an excellent buy at these levels.
