We're only a few days away from an important anniversary for Livongo Health (LVGO). On July 25, Livongo will celebrate its first full year as a publicly traded company.
It's been a wild ride for investors who bought Livongo Health shares early on. But just how much money would you have now if you had invested $10,000 in the digital health-management company's initial public offering (IPO)?
A lucrative 12 months
On July 15, 2019, Livongo Health announced that it planned to conduct an IPO and list its shares on the Nasdaq stock exchange. The company originally intended to sell 10.7 million shares at a share price between $20 and $23.
Those plans were quickly upsized. Just nine days later, Livongo revealed that it would instead sell nearly 12.7 million shares in its IPO. And the price tag jumped to $28 per share.
Livongo Health made its debut on the Nasdaq on July 25, 2019. The healthcare stock opened at $40.51 per share, a premium of nearly 45% over its IPO price. At one point during the first day of trading, investors who bought in the IPO sat on a gain of more than 62%. The surge faded somewhat, though. Livongo's shares closed at $38.10, up 36% from the IPO price.
Some investors might have been tempted to take the money and run. That would have been an unwise move, to put it mildly.
An initial investment of $10,000 at Livongo's IPO would have bought 357 shares. If you had held onto those shares until now, you'd be sitting on over $37,700. Since its IPO, Livongo Health has delivered a return of 285%. It's been a lucrative 12 months for investors who jumped aboard early.
Why Livongo skyrocketed
Having the patience to hang on to Livongo Health shares was probably challenging. By the end of September 2019, the stock was nearly 38% below its IPO price. At the end of 2019, Livongo shares were still down more than 10%. For most of the first quarter of 2020, the stock merely muddled along.
And then it skyrocketed. All of the incredible returns that Livongo Health has generated since its IPO came over the last three and a half months. What changed? The COVID-19 pandemic.
All along, though, Livongo's business was performing well. In early March, the company reported strong revenue growth for the fourth quarter of 2019. Livongo achieved record new client signings and claimed over 30% of the Fortune 500 as customers. Its stock price, however, didn't reflect this significant progress.
It soon became clear that Livongo Health's business benefited from the pandemic. In early April, the company reported preliminary Q1 revenue that topped its previous guidance. Livongo Health CEO Zane Burke stated in May, "The COVID-19 pandemic has accelerated the need for new virtual care delivery models like Livongo."
The good news kept coming. Last week, Livongo again reported preliminary quarterly revenue that blew away its previous guidance. Thanks largely to COVID-19, investors recognized the value that Livongo's digital health-management solutions provided.
What kind of returns could be ahead?
You can't go back in time and buy at Livongo Health's IPO if you missed out on the opportunity. However, it's not too late to invest in the high-flying healthcare stock.
Livongo believes that its addressable market in diabetes management stands north of $28 billion. The company also focuses on hypertension management, which represents a potential annual market of $18.5 billion.
If we assume that the company could realistically capture 15% of its total addressable market of nearly $47 billion, Livongo could be on track to generate annual sales in the ballpark of $7 billion. That level would likely peg the company's market cap at around $35 billion and perhaps even higher. Livongo's market cap currently stands at $10.3 billion.
There are a few things to keep in mind, though. Livongo's success will almost certainly attract increased competition. On the other hand, those addressable market figures only include two chronic conditions in the U.S. Livongo's offerings go beyond just diabetes and hypertension. The company could also expand into international markets down the road.
The bottom line is that Livongo Health should still be able to generate impressive returns in the future. I expect there will be plenty of reasons for investors to celebrate the stock for a long time to come.