Shares of WELL Health Just Zoomed. Is It a Buy?

Given its improving financials and healthy growth prospects, WELL Health could deliver superior returns over the next three years.

| More on:
Nurse talks with a teenager about medication

Source: Getty Images

WELL Health Technologies (TSX:WELL) reported an impressive third-quarter performance on Thursday, with its topline and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increasing by 23% and 10%, respectively. After posting its third-quarter performance, the company has raised its 2024 guidance and stated that it is on track to reduce its share dilution to the lowest this year. Its strong performance and raising of 2024 guidance have strengthened investors’ confidence, raising its stock price by over 10% since reporting its third-quarter performance.

Despite the surge, it trades at a substantial discount to its 2021 highs. So, let’s examine its third-quarter performance and growth prospects in detail to assess the buying opportunity in the stock.

WELL’s third-quarter performance

WELL Health reported $251.7 million in revenue in the third quarter that ended on September 30, representing a 23% increase from the previous year. Organic growth contributed 23%, while acquisitions over the last four quarters drove 4% of revenue growth. However, the divestments during the period have offset some of the growth. All its three reporting segments have posted revenue growth, with the revenue of Canadian Patient Services, U.S. Patient Services, and SaaS and Technology Services growing by 35%, 21%, and 19%, respectively.

The company had 1.5 million patient visits during the quarter, representing a 41% increase from the previous year’s quarter and an annualized patient visit of 5.9 million. Besides, its gross margins contracted 150 basis points compared to the previous year’s quarter, primarily due to the contribution from lower-margin businesses acquired in the last four quarters.

Moreover, WELL Health generated an adjusted EBITDA of $32.7 million, representing a 16% increase from the previous year. However, the adjusted EBITDA to WELL shareholders increased by 10% to $25.1 million. Due to higher interest, depreciation, and amortization expenses, its adjusted net income rose just 1% to $13 million during the quarter. It also generated $16.2 million of adjusted free cash flows during the quarter. Now, let’s look at its growth prospects.

WELL’s growth prospects

The popularity of virtual healthcare services is growing amid improving telecommunication connectivity, innovative product development, and the convenience and cost-effectiveness of the service. Besides, the increased usage of software services in the healthcare sector and digitization of patient records have expanded the addressable market for WELL Health. Further, the company is investing in artificial intelligence (AI) to develop innovative products that could assist healthcare providers in delivering positive patient outcomes.

The company is also continuing its inorganic growth. It has acquired three clinics in British Columbia and is working on acquiring four diagnostic imaging clinics in Alberta. Besides, it has around 17 signed letters of intent and definitive acquisition agreements that are pending. So, along with organic growth, these acquisitions could continue to drive its financials in the coming years. The company has also adopted several cost optimization initiatives to improve its profitability. Besides, management has stated that its financial position is healthy and can fund its organic growth and acquisitions. So it won’t dilute its shares further.

Meanwhile, WELL Health’s management has raised its 2024 guidance. The new revenue guidance represents a 27.5% year-over-year growth, while its adjusted EBITDA could increase by 12.4%. Considering all these factors, I believe WELL Health’s growth prospects look healthy.

Investors’ guidance

Despite healthy buying over the last three trading days, WELL Health trades at an attractive valuation. Its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples stand at 1.2 and 18.9, respectively. Considering its long-term growth prospects and attractive valuation, I believe WELL Health would be an excellent buy.

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Tech Stocks

profit rises over time
Tech Stocks

2 Non-AI Tech Stocks to Buy in November for Better Returns

Not all AI stocks are riding the hype train, and for many investors, well-understood and predictable growth stocks might be…

Read more »

worry concern
Tech Stocks

In a Few Years, You’ll Probably Regret Not Owning BlackBerry Stock

Here’s why I believe BlackBerry could be one of the most overlooked Canadian tech stocks right now.

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

Is Constellation Software Stock a Buy for its 0.25% Dividend Yield?

Here's what investors may want to consider when it comes to Dollarama (TSX:DOL) and its relatively low dividend yield.

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

3 Artificial Intelligence (AI) Stocks to Buy With $1,000 and Hold for Decades

Three TSX stocks are excellent choices for Canadians looking for exposure to significant AI players.

Read more »

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

Where Will OpenText Stock Be in 1 Year?

OpenText (TSX:OTEX) stock's uncertain future: AI potential versus stagnant growth over the next 12 months

Read more »

Abstract Human Skull representing AI
Tech Stocks

Is Lightspeed Commerce a Buy After Q2 Earnings?

Given its healthy growth prospects, improving profitability, and reasonable valuation, I expect Lightspeed's uptrend to continue.

Read more »

GettyImages-three smiling investors_using tablet
Tech Stocks

2 Reasons to Buy Nvidia Before Nov. 20 and 1 Reason to Wait

This top AI stock has soared nearly 200% this year.

Read more »

A man smiles while playing a video game.
Tech Stocks

A Few Years From Now, You’ll Wish You Bought This Undervalued Stock

A dividend-paying but undervalued tech stock is a buying opportunity for both income and growth investors.

Read more »