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5 Reasons I Just Bought Livongo Stock

By Brian Withers - Jul 8, 2020 at 9:21AM

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This high-tech healthcare disrupter is just getting started.

Livongo Health (LVGO) stock has nearly tripled from its initial public offering less than a year ago. Investors may think they've missed out on a great investment, but it's not too late to be part of this long-term growth story. I purchased shares a few weeks ago in this healthcare tech specialist that's taking a disruptive approach to helping people manage chronic conditions. 

Let's look at the five reasons this stock earned a coveted spot in my portfolio of 27 stocks.

1. It has a people-focused mission 

Livongo's mission is "to empower people with chronic conditions to live better and healthier lives." It started with a focus on diabetes and the opportunity to utilize technology to improve the lives of those who deal with this disease day to day. It built a comprehensive system that supports the "whole person," with all of the supplies needed to monitor blood glucose levels, personalized insights powered by software, and access to on-demand coaching 24/7.

Its members love the platform because it's easy to use, helps them stay healthy, and is free as the cost is covered by their health insurance provider. 

2. It helps insurers save money

The company makes it easy and profitable for insurers and companies that are providing healthcare benefits for its members. Once they sign on, Livongo does the work to attract members, and clients only pay for members who use the service at a per-member per-month rate. As potential members learn about the convenience and improved health outcomes, they are encouraged to try the program. This approach is clearly working, as growth within existing clients was measured at a 112% dollar-based net expansion rate for 2019.

Woman checking glucose levels with an app.

Image source: Getty Images.

For Livongo's clients, every member that signs up is a win because it helps reduce the overall cost of healthcare. In an interview with The Motley Fool, CEO Zane Burke said that clients saw "an excess of 3x return on investment in our core diabetes solution in year one."

This win-win approach is attracting more clients and members, and is driving top-line growth.

3. It's demonstrating impressive growth 

The company has seen tremendous growth in the last few years. Since 2017, it's grown paying clients 5.7x, members 6.1x, and its annual revenue run rate 6.7x to $207 million for the most recent trailing-12-month period.

Metrics

2017

2018

2019

Q1-2020

Clients

218

413

872

1,252

Members

54,000

114,000

223,000

328,000

Revenue

$30.9 million

$68.4 million

$170.2 million

$68.8 million

Year-over-year revenue growth

Not available

121%

149%

115%

Note: Client and member data is based on end-of period. Data from company SEC filings. Table and calculations by author. 

Management is projecting fiscal 2020 revenues to grow between 70% and 78%, or to $296.5 million at the midpoint of guidance. It's likely the company will even surpass these heady growth goals because of the size of its market. 

4. Its market is huge

Livongo got its start serving diabetes patients but has since expanded its solutions to other chronic conditions, including hypertension, prediabetes/weight management, and behavioral health. Management estimates that 147 million people in the U.S. have a chronic condition and 40% of those have more than one. Just looking at diabetes and hypertension, the addressable market is $46.7 billion, giving the company plenty of room to run.

A huge market doesn't matter if the management isn't up to the task, but that's not the case for Livongo's talented team.

5. Its management team brings a wealth of experience 

Founder and Executive Chairman Glen Tullman's career has been focused on the intersection of healthcare and technology. Prior to joining Livongo, he was CEO of two healthcare tech companies, including a 14-year run as CEO for Allscripts, an electronic health record specialist. He started as Livongo's CEO in 2014 and is also a managing partner at 7Wire Ventures, focused on the investing thesis of an "intelligent connected health consumer."

His executive team has similar healthcare and technology-focused backgrounds. Zane Burke was brought in as CEO in December 2018 from Cerner, a healthcare information technology company, where he spent 18 years in numerous leadership roles. President Jennifer Schneider, M.D., M.S. previously worked at Castlight, a healthcare technology company and started as Livongo's Chief Medical Officer in 2015. Chief Financial Officer Lee Shapiro worked with Tullman at Allscripts for 11 years and is a partner of 7Wire Ventures.

Not surprisingly, the senior staff under these four executives also have backgrounds from well-known high-tech and healthcare specialists. This mix of backgrounds is just the kind of experienced leadership you'd want in a company that's trying to change the status quo of how people deal with chronic conditions.

Take a long look at Livongo

This innovative company hits many of my buying criteria for a quality growth stock: founder-led, with a proven track record of growth, a huge market, a game-changing platform that people love, and a solid management team. Livongo has a long growth runway ahead as it helps its members live healthier lives through the power of technology. 

My initial stock purchase only represents 1% of my portfolio today, but as the company grows, I anticipate I'll add to my position as I've done with one of my other long-time favorites. If you are a long-term focused growth investor, you might consider joining me in starting a position too.

Brian Withers owns shares of Livongo Health Inc. The Motley Fool owns shares of and recommends Livongo Health Inc. The Motley Fool recommends Cerner. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Livongo Health, Inc. Stock Quote
Livongo Health, Inc.
LVGO
Allscripts Healthcare Solutions, Inc. Stock Quote
Allscripts Healthcare Solutions, Inc.
MDRX
$17.47 (-0.28%) $0.05
Cerner Corporation Stock Quote
Cerner Corporation
CERN
Castlight Health, Inc. Stock Quote
Castlight Health, Inc.
CSLT

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