Like most stocks, Livongo Health (NASDAQ:LVGO) plunged during the stock market meltdown in March. But Livongo's rebound has been more spectacular than most. Its shares are now up more than 100% year to date.

However, this huge gain has also caused Livongo to have a huge valuation. The healthcare stock currently trades at nearly 27.5 times trailing-12-month sales. Is Livongo Health still a great stock to buy?

Smartphone displaying health metrics next to glucometer and documents with health information

Image source: Getty Images.

A fast-growing business

Livongo Health's story is similar to that of many successful companies. It saw a need and developed a solution to address that need. In Livongo's case, the need was to help individuals better manage their chronic health conditions. And the company's solution was to use technology, including artificial intelligence and data sciences, to enable people with chronic conditions to live healthier lives.

The company started out tackling diabetes. It then expanded into hypertension. Livongo's strategy was to translate data into what it calls applied health signals -- actionable and personalized notifications aimed at helping people achieve better health outcomes and lower medical costs.

Livongo focuses on employers rather than marketing directly to individuals. This approach has worked really well for the company. In 2017, Livongo had 218 clients with 54,000 members. It now has 1,252 clients, including over 30% of the companies that made the Fortune 500 list in 2018, with 328,000 members using its platform.

This has translated into impressive revenue growth with sustained momentum. Livongo's sales soared 115% year over year in the first quarter of 2020 to $68.8 million. And while the company isn't profitable yet on a GAAP basis, it posted adjusted earnings in Q1 of $3.9 million with steady improvement on its GAAP bottom line.

A massive opportunity

As the mutual fund disclaimers often say, past performance is no guarantee of future results. However, Livongo certainly has a massive opportunity before it.

Chronic conditions present a serious healthcare problem. In the U.S. alone, around 147 million people have at least one chronic condition. Forty percent of people have more than one chronic condition. A Milken Institute study estimated the annual cost to the U.S. economy from chronic conditions to be in the ballpark of $3.7 trillion. 

To be sure, Livongo Health doesn't have a $3.7 trillion annual market opportunity. But it should realistically have an addressable market of close to $47 billion annually focusing on diabetes and hypertension in the U.S. And that doesn't include the potential for Livongo in weight management and behavioral health.

How can the company capture a big chunk of this addressable market? Livongo must show that it improves patient outcomes and reduces costs.

The good news is that the company is already demonstrating results on both fronts. One of Livongo's customers, Fortune Brands, saw solid improvements in members' HbA1c levels, blood pressure, and Depression Anxiety Stress Scale (DASS) scores as well as weight loss for members who used Livongo's diabetes management platform. Livongo also has delivered gross annual savings of more than $1,900 per participant. 

The COVID-19 pandemic is helping Livongo expand. Remote patient monitoring is being viewed as more of a must-have than ever before. Livongo Health CEO Zane Burke said in the company's Q1 conference call, "There is no question in our mind that this pandemic has accelerated a more extensive virtual care delivery model. Remote monitoring is here to stay, and we expect it to become the standard of care for the most vulnerable and expensive populations." 

To buy or not to buy?

Because of its valuation, Livongo could be more volatile than most stocks. The company could also be negatively impacted if unemployment rates in the U.S. remain high and cause its membership growth to slow down. However, I don't think either of these potential issues is too worrisome. 

My view is that Livongo Health is a great stock to buy for long-term investors. I expect that the company will continue to attract more corporate clients seeking to control their ballooning healthcare costs. I also look for Livongo to generate significantly higher growth from its hypertension, weight management, and behavioral health initiatives. I personally own shares of Livongo and plan to add even more to my position.