WELL Health Technologies Corp

WELL Health Technologies Corp (TSX: WELL) is a Canada-based omni-channel digital health company. The Company is primarily engaged in operating primary healthcare facilities, as well as an electronic medical records (EMR) business.

Key Highlights

• WELL is one of the best performing shares on the street in 2020. Its shares are featuring a return of 439% on a YoY basis, 390% on YTD and 189% in the past 6 months. Its shares are hovering approximately 70% above the crucial long-term support level of 200-day SMA, which implies that the bull run has not yet ended in the stock, though the pace has slowed down over the past three months.
• The stock has soared because of three consecutive quarters of revenue growth over 35% in each of the quarter led by booming demand for its services, a significant reduction in the cost of sales from ~65% of the sales in September quarter of 2019 to ~59% of sales in the same quarter of the FY20, and gross margin is now above 40% of the total sales, a record high in September quarter.
• The group is focusing on consolidating and modernizing clinical and digital assets. This digitization is a long-term play, and the benefits are big. Digital tools can increase operational efficiency. They can improve patient care and can allow physicians to focus more on what matters.
• Further, a significant portion of Well Health’s growth is via acquisitions. So far in the fourth quarter, seven acquisitions have been closed. Well Health is expanding geographically. It is also expanding and strengthening its presence into different aspects of virtual care.
• Moreover, WELL continues to have a strong balance sheet with approximately CAD 85 million in cash and no debt, thereby allowing the Company to continue to execute on its aggressive organic and inorganic growth strategies.

Q4FY20: Preliminary Update

• WELL expects to be profitable on an Adjusted EBITDA basis for the quarter
• WELL's Allied Health business unit is performing exceptionally well with revenue of the Easy Allied subsidiary increasing by over 40% on a year-over-year basis in November 2020 compared to November of last year.
• DoctorCare, the Company's Billing and Backoffice Business Unit, also had a strong month in November as its Billing as a Service (" BaaS ") revenue increased by over 30% as compared to November of last year.
• Further, WELL has closed seven transactions in fiscal Q4 so far, propelling the Company to an annualized revenue run-rate of more than CAD 94 million.

Risk: The Company processes a significant amount of transactions and earns a majority revenue stream from one geographic location, the Province of British Columbia, Canada. If economic, regulatory, legislative, or other factors affecting the Company’s business were to adversely change, then the revenues of the Company would be negatively impacted.

Stock Recommendation

The group is experiencing strong growth across all of its business units. WELL's Digital Health Apps Business Unit is thriving with significant sequential organic and inorganic growth experienced in Q4 so far, mainly due to record telehealth revenues achieved in November. WELL's Allied Health business unit is performing exceptionally well with revenue of the Easy Allied subsidiary increasing by over 40% on a year-over-year basis in November 2020 compared to November of last year. Also, the group is also expecting to be profitable on an Adjusted EBITDA basis for the fourth quarter, being profitable is a truly notable milestone for the Company.

Despite a stellar run-up, its shares have registered a bullish breakout after a little price consolidation since October 2020. WELL shares, on last trading day breached over the strong short-term resistance of 50-day SMAs and closed above it, which is a bullish technical indicator and prices could move up further.

However, the valuation is quite stretched for the stock at current market price, as the stock is trading at a TTM Price/Sales multiple of 28x whereas as industry multiple is in lower single digit. Also, the stock is trading at a forward EV to sales multiple of 10.7x, which is significantly higher against the industry median of 1.7x.

Though the technical indicator is showing further upside, the stock's valuation is stretched. Hence, we prefer to remain on the sideline on the stock and recommend a “Watch” stance with limited upside potential at the closing price of CAD 7.65 on December 18, 2020.

Disclaimer

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