Finding a stock that can change your life is the holy grail of investing. While it's pretty simple in theory, the reality is much harder to achieve. Not only do you have to find these elusive ultra-successful companies, but you also have to invest in them early enough in their life cycles that the gains will be meaningful.
Livongo Health (NASDAQ:LVGO) could be such a stock. It initially dipped after its public debut in July of last year, but so far this year has more than quadrupled -- and that could be just the beginning.
Let's look at what the company does and why I believe it could generate life-changing returns in more ways than one.
A new approach to chronic conditions
Patients with ongoing health issues like diabetes were once largely left to fend for themselves between doctor visits. Livongo Health changes that paradigm. The company's connected devices help those with chronic health issues better manage their conditions, thereby lowering the cost of their overall healthcare.
Livongo gathers and analyzes patient data and vital statistics with the use of cutting-edge algorithms and artificial intelligence. By aggregating the data, Livongo can detect patterns and develop strategies that are helpful to all of its users. Additionally, the medical technology company provides customized feedback and coaching, as well as tips and tricks to help patients stay on track.
While the company initially focused on diabetes management, Livongo has since expanded its offerings to other chronic conditions, aiding patients with weight management issues, hypertension, and behavioral health conditions including depression and anxiety. Livongo continues to expand its number of use cases and seek additional applications for its technology.
By encouraging users to incrementally change their behavior, Livongo is providing the tools that help them live longer, healthier lives -- a form of life-changing returns for patients who use its services.
Investors benefit, too
Earlier this month, Livongo announced preliminary results for its second quarter, crushing expectations and sending the stock soaring. The company said it now expects revenue in a range of $86 million to $87 million, which would represent year-over-year growth of 110% to 113%. This was much more robust growth than management had originally forecast (revenue in a range of $73 million to $75 million and growth of 78% to 83%).
Even more impressive is that these gains came on the heels of first-quarter revenue that was already up 115% year over year, and the number of overall clients climbed 44%. Livongo for Diabetes, the company's flagship program, saw expansion of more than 100%.
Since the onset of the pandemic, patients have increasingly turned to telemedicine and connected devices to avoid trips to the doctor's office and lower their risk of contracting the coronavirus.
By improving the lives of patients and lowering the cost of their healthcare, Livongo has created a true win-win -- and a compelling opportunity for investors. Even after its impressive gains over the past year, Livongo still has a market cap of just $10 billion, giving the company plenty of room to grow into a life-altering investment.
It's important to note that Livongo isn't yet profitable, which isn't uncommon for a company of its size that's new to the public markets. The stock is also by no means cheap, with a forward price-to-sales ratio of 31 (compare this with the S&P 500's average of about 1.6). Still, when you factor in the company's triple-digit year-over-year revenue growth, it doesn't seem nearly as expensive.
When it comes to life-changing returns, it's important to remember that investor psychology often comes into play, and buying the right stock is only half the battle. Many investors have found and purchased shares in a company that could potentially be that investment, only to sell too early to "take money off the table," or abandon the stock at the first sign of challenges that every company will inevitably face.
Life-changing investments are only possible if -- after identifying the right company -- you're willing to hold through thick and thin, giving the business the opportunity to achieve greatness.