The novel coronavirus pandemic has accelerated growth for several industries. Some examples include e-commerce, online gaming, social media and telehealth. When it comes to investing, telehealth stocks might have legitimate staying power.
It seems very likely that some of these changes are permanent in nature. After strong growth in fiscal 2020, the U.S. telehealth market is expected to grow at a CAGR of 29% through FY2025.
Some of the top companies in the telehealth industry are likely to see top-line growth that’s well above the industry average. This makes telehealth stocks worth considering for the next few years.
It’s worth noting that after a strong rally, most telehealth stocks have cooled off. The correction is temporary and quality names in the industry are likely to continue trending higher.
Let’s take a deeper look into four telehealth stocks that are potentially good investment options.
- Teladoc Health (NYSE:TDOC)
- 1Life Healthcare (NASDAQ:ONEM)
- WELL Health Technologies (OTCMKTS:WLYYF)
- American Well Corporation (NYSE:AMWL)
4 Telehealth Stocks: Teladoc Health (TDOC)
TDOC stock has seen a significant correction from highs of $308 to current levels of $171, but it’s still my top pick. The downside presents a good opportunity.
It’s worth noting that Teladoc has been on a high-growth trajectory. For fiscal 2020, the company reported 98% revenue growth on a year-on-year basis. For this year, the company has guided for revenue growth of 81%.
Of course, the markets might be disappointed with revenue growth deceleration. However, the company has a multi-year tailwind, and as the number of paid members increase (80% revenue on a subscription basis), the EBITDA margin is likely to improve significantly.
For the current year, the company has guided for an adjusted EBITDA margin of 13.4%. Operating cash flow is also likely to accelerate as EBITDA margin improves.
Teladoc can possibly continue to pursue acquisitions to maintain a strong market position. In August 2020, the company merged Livongo, which is a diabetes and hypertension management company. According to the company, 70 million people in the U.S. have diabetes or hypertension. The merger, therefore, expands the addressable market for the company.
Overall, TDOC stock is attractive as the company is positioned for strong growth in the coming years. In FY2020, Teladoc reported 17% growth in international access fee revenue to $124 million. If the company can make inroads in the global markets, the opportunity is significant.
1Life Healthcare (ONEM)
ONEM stock is another interesting name among telehealth stocks. The Alphabet (NASDAQ:GOOGL) backed company is a provider of in-person as well as telehealth visits.
Similar to the trend in most telehealth stocks, ONEM stock has corrected in the recent past from $59 to $41.50 today. This might present a good opportunity for some exposure.
For FY2020, the company reported net revenue of $380.2 million, which was higher by 38% on a year-over-year basis. Importantly, 60% of the company’s total revenue was recurring in nature. The company ended last year with a total membership count of 549,000. In the current year, members are likely to increase to 595,000 with the company guiding for revenue of $475 million.
On the flip-side, 1Life Healthcare reported an adjusted EBITDA loss of $14 million for last year. Even for the current year, the company has guided for $10 million (mid-range) in adjusted EBITDA loss. It remains to be seen if the company can boost EBITDA margin in the next few years with sustained growth in recurring revenue.
Of course, with the backing of Alphabet, I don’t see any financial concerns. The company can sustain cash burn and continue to expand aggressively in the next few years.
With Amazon’s (NASDAQ:AMZN) virtual health care pilot program expanding nationwide, competition is growing. The focus in these initial growth years will be aggressive client addition and retention than positive cash flows.
WELL Health Technologies (WLYYF)
For investors looking at some diversified exposure to telehealth stocks, WLYYF stock is worth considering.
First, the company is a leading provider of telehealth services across Canada. Therefore, the stock provides regional diversification. Further, since WLYYF stock trades at a market capitalization of $980 million it’s among the smaller names in the industry that has the potential to grow significantly in the coming years.
For the current year, Well Health reported revenue of $50 million and turned its adjusted EBITDA positive in Q4 2020. However, the company is now expecting an annualized revenue of $300 million for the year.
The key reason is the acquisition of CRH Medical (NYSEMKT:CRHM), which will help Well Health make inroads in the U.S. markets. CRH Medical has an annual revenue of $120 million with an attractive operating EBITDA margin of 40%.
In January 2021, Well Health also acquired Adracare. The company is still small in terms of revenue. However, it provides telehealth, clinic management and software related services in five countries. The acquisition is likely to help Well Health in further regional diversification in the coming years.
Overall, WLYYF stock is attractive even after an upside of more than 400% in the last year.
American Well Corporation (AMWL)
AMWL stock is another name among telehealth stocks that has corrected in the recent past. In the last month, the stock is lower by 26%. One reason for the downside is a secondary public offering in January.
However, the company’s strong top-line growth has sustained. If the proceeds from the equity offering trigger further growth, the stock will bounce back. The company reported revenue of $245.3 millionlast year as compared to $148.9 million in FY2019.
American Well has guided for revenue of $265 million for this fiscal year. Revenue growth will therefore be muted as compared to the prior year.
It makes sense to consider exposure to the stock if growth accelerates. In addition, the company has guided for EBITDA level loss of $152 million for the year. Cash burn is also a concern even as the company has ample liquidity buffer.
Therefore, among the telehealth stocks, I would be cautious on AMWL stock, though it’s still worth keeping on your radar. With the cash buffer, there is a likelihood of acquisition to trigger top-line growth.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.