On today’s TSX Breakouts report, there are 42 stocks on the positive breakouts list (stocks with positive price momentum), and 11 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list. The share price has more than doubled year-to-date, rising 138 per cent, and this is on top of the 247 per cent gain realized in 2019. Growth has been pulled forward due to demand for the company’s telehealth services.
Interestingly, this Canadian company has attracted the interest and financial backing of one of the world’s richest people, Li Ka-shing, often referred to as the Warren Buffett of Asia.
The security highlighted today is WELL Health Technologies Corp. (WELL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Vancouver-based WELL Health Technologies has four main business segments: 1) clinical/medical service provider with 20 medical centers located in B.C. (family practice and walk-in clinics) as well as telehealth services. This segment represents the largest contributor to the company’s total revenue, 2) electronic medical records (EMR) software provider to over 1,900 medical clinics across the country (management believes WELL is the third largest EMR supplier in the country. This high-margin business provides predictable, recurring revenue and represented roughly 17 per cent of total revenue in the first-quarter), 3) cybersecurity services aimed at protecting personal information with the increasing use of digital medical services, and 4) WELL Digital Health Apps (WDHA), a newly formed business unit.
Highlighted below are several attractive company characteristics that may help the share price continue to climb higher.
* Growth: Growth has been pulled forward helped by the company’s VirtualClinic+ national platform, which provides access to telehealth services via phone or video.
On May 15, the company reported record quarterly revenue of $10.2-million, up 38 per cent year-over-year. WELL reported an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of approximately $246,000, and an earnings per share loss of 2 cents.
On the first-quarter earnings call, the chief executive officer Hamed Shahbazi highlighted management’s core objectives for 2020, “One, achieving organic revenue growth in both its clinical and digital portfolios; two, continuing to follow a disciplined acquisition strategy, which includes the acquisition of or investment in accretive health clinics, OSCAR-based EMR service providers and other digital health care technology companies; three, increase our market penetration in the telehealth service sector; and four, achieve positive adjusted EBITDA in the second half of 2020.”
Mr. Shahbazi noted on the call the positive conversion of new patients to regular patients. Nearly 16 per cent of patients using VirtualClinic+ have had repeat visits with the same doctor.
“There are roughly five million unattached patients in Canada and many of them who are looking for a family physician, and many of them frustrated that they weren’t able to find one,” he said. “We are now seeing and that they are able to find physicians that they like on our platform. Thousands of patients are selecting doctors that they had a good experience with and going back to see them multiple times. We’re also finding that many patients have gone on to see doctors in person, inside clinics after seeing them online.”
He added, “Telehealth is also improving the long-term economics of our physical clinics. Going forward, we anticipate that physicians will be operating in a hybrid model of seeing patients in clinics as well as using telehealth.”
* Acquisition growth: WELL has the financial flexibility to continue to make acquisitions with over $24-million of cash on its balance sheet as at June 30. The company recently formed a new subsidiary, WELL Digital Health Apps Inc. (WDHA) that will focus on acquisition opportunities in the digital health apps market. In July, Shervin Bakhtiari was appointed to general manager of WDHA. In addition, the company hired Michael Goodman as head of acquisitions - Eastern Canada.
* Proven leadership and financial backing: Years ago, CEO Hamed Shahbazi founded TIO Networks Corp., a cloud-based bill payment processor that was acquired by PayPal Holdings Inc. (PYPL-Q) in 2017 for over $300-million.
According to Bloomberg, Hamed Shahbazi, owns over 14 per cent of WELL’s outstanding shares.
Interestingly, this small-cap Canadian stock caught the eye of Hong Kong business mogul Li Ka-shing, one of the richest people in the world and sometimes referred to as the Warren Buffett of Asia.
The company is expected to release its second-quarter financial results in the second half of this month.
The company does not pay its shareholders a dividend.
There are 10 analysts that actively cover this small-cap stock with a market capitalization of $487-million, of which eight analysts have ‘buy’ recommendations and two analysts have ‘speculative buy’ recommendations.
The firms providing research coverage on the company are: Beacon Securities, Canaccord Genuity, Desjardins Securities, Echelon Wealth Partners, Eight Capital, Haywood Securities, Laurentian Bank Securities, Paradigm Capital, PI Financial and Stifel Canada.
Last month, six analysts revised their expectations – all higher.
- Beacon’s Gabriel Leung raised his target price to $4.25 (the high on the Street) from $3.50.
- Canaccord’s Doug Taylor tweaked his target price to $3.40 from $3.25.
- Haywood’s Colin Healey increased his target price to $3.90 from $3.30.
- Stifel’s Justin Keywood lifted his target price by 50 cents to $4.
- PI Financial’s David Kwan adjusted his target price slightly higher to $3.50 from $3.35.
- Laurentian’s Nick Agostino bumped his target price to $3.50 from $3.25.
The consensus revenue estimates are $43-million in 2020, up from $32.8-million reported in 2019, $59-million in 2021 and $75-million in 2022. The Street anticipates EBITDA to come in at a loss of $1-million in 2020, and to be positive $4-million in 2021. The Street is forecasting earnings per share to come in at a loss of over 6 cents in 2020, and a 2 cent loss in 2021.
The consensus revenue forecast has been stable for 2020 but has increased for 2021. For instance, three months ago, the Street was forecasting revenue of $50.6-million for 2021.
The stock can be valued using a number of methodologies including a sum-of-the-parts (SOTP) methodology, ascribing different valuation metrics to the individual business segments, or on a discounted cash flow (DCF) basis, or on an enterprise value-to-sales (EV/sales) multiple basis.
According to Bloomberg, the stock is trading an EV/sales multiple of 8.3 times the 2021 consensus estimate, and 6.4 times the 2022 consensus estimate.
The average one-year target price is $3.76, suggesting the share price is fully valued. Individual target prices are as follows in numerical order: $3.40 (from Canaccord’s Doug Taylor), four at $3.50, two at $3.90, $4, $4.10, and $4.25 (from Beacon’s Gabriel Leung).
Year-to-date, there has not been any trading activity in the public market reported by insiders.
Year-to-date, the share price is up 138 per cent, this is on top of the 247 per cent gain in 2019!
The share price can be volatile. For instance, the share price dropped over 22 per cent between May 11 (closed at $3.27) and June 11 (closed at $2.53) but snapped back to a record closing high of $3.72 on July 31. On the final trading day of July, the share price jumped 3.6 per cent on high volume with over 2 million shares traded. The three-month historical daily average trading volume is approximately 1.37 million shares.
In terms of key resistance and support levels, the stock has an initial ceiling of resistance around $4. After that, the next major resistance level is around $4.50. Looking at the downside, there is strong technical support around $3, near the stock’s 50-day moving average (at $2.95). Failing that, there is technical support around $2.50.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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