Well Health Stock: Buy, Sell, or Hold?

Another record-breaking quarter and strong demand sets the stage for continued momentum for Well Health stock.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published November 13, 2024 8:30 pm EST

| More on: WELL

Up 37% so far this year, Well Health Technologies (TSX:WELL) stock has been quietly making a comeback. Let’s take a look at what’s behind this rapid rise and ultimately decide whether it’s a good time to buy Well Health stock today.

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Well Health continues to shatter records

Breaking financial records and increasing guidance have become typical for Well Health Technologies. In fact, in its latest quarter (Q3 2024), Well Health continued this trend with its 23rd consecutive quarter of record-breaking results.

These results included a 27% increase in revenue to $251.7 million. They also included a 16% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $32.7 million, as well as record patient visits. Finally, the company hit its $1 billion annual run-rate revenue target one quarter ahead of expectations, signalling the strong momentum in the business.

With this, management increased its 2024 guidance and is now calling for revenue of between $985 million and $995 million.

Plenty of catalysts coming to take Well Health stock higher

Looking ahead, cash flows can be expected to increase, debt to decrease, and profitability to rise. There are a few main areas of opportunity for Well Health Technologies that I think will drive Well Health stock higher.

The first is the Canadian consolidation opportunity and Well Health’s mergers and acquisition pipeline, which continues to be large. I’d like to start off with a few statistics that highlight this opportunity. Of the $40 billion in physician spending, Well Health receives a mere $400 million, signalling a very tiny market share. This is a fraction of what’s possible, and Well Health is focused on capturing more of it as time goes by.

In fact, the company’s long-term goal is to capture $4 billion in revenue, which is 10 times the current level and would still only be a mere 5% market share. Also, of the 20,000 clinics in Canada, Well Health owns only 200. This market is prime for consolidation, and Well Health has its sights set on it.

At this time, the pipeline of acquisitions is large, with Well Health having 17 active letters of intent (LOIs) for acquisitions as well as 30 pending LOIs. Importantly, management has remarked that there’s limited competition for acquisitions in Canada. They attribute this to the company’s scale, expertise, and proprietary solutions.

Extracting value

The company has a complex business, with many business lines in both Canada and the United States. In Canada, Well Health has its booming patient services business, which includes its primary care business and its diagnostics business. In the U.S., Well Health has its U.S. patient services businesses. These businesses all continue to perform extremely well, yet as management puts it, Well Health stock does not reflect the sum-of-the-parts valuation of the entire company.

Therefore, the company is looking to extract this value by exploring strategic alternatives for two of its U.S. businesses. For example, the company is looking to divest of Circle Medical, Well Health’s national U.S. telehealth provider. This would bring extra cash into Well Health and effectively arm the company with more funds to pursue its Canadian primary care opportunity.