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Why Livongo Rival Ontrak's Stock Soared 55% in July and Is Up 52% in August

By Beth McKenna – Aug 9, 2020 at 10:47AM

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This virtual healthcare specialist's stock is getting a tailwind from the COVID-19 pandemic and a peer's pending acquisition.

What happened

Shares of virtual healthcare specialist Ontrak (OTRK 4.34%) soared 54.7% in July, according to data from S&P Global Market Intelligence. For context, the S&P 500 returned 5.6% last month.

Moreover, the stock skyrocketed 51.6% in the first week of August, bringing its total 2020 gain to a whopping 256%.

Ontrak (which recently changed its name from Catasys) provides a suite of virtual and in-person tools to help improve the health of people with mental health issues and chronic physical conditions.

Hand with pointer pointing to a screen showing various healthcare-related icons.

Image source: Getty Images.

So what

July  

We can attribute Ontrak stock's strong performance last month in part to a continuation of the momentum it's experienced over the last couple of months. This momentum has been driven by two main catalysts: the COVID-19 pandemic and the company's late June announcement of its national expansion with a leading U.S. health plan.

The pandemic has provided a tailwind for the broad digital health space, as people have embraced ways to improve their health without physically visiting a healthcare provider. 

August

Along with continued momentum from last month's news, we can attribute Ontrak stock's powerful start to this month to two additional main catalysts. The first is the company's Aug. 5 release of second quarter results that delighted investors. The second is news released on that same day that Ontrak's larger and faster-growing rival, Livongo Health (LVGO), is being acquired by telehealth leader Teladoc Health (TDOC 0.80%).

Ontrak stock surged 9.3% on Aug. 5 following the Livongo acquisition news, and soared 44% the next day following the release of its second quarter results the prior afternoon.

In the second quarter, Ontrak's revenue rocketed 124% year over year to $17.2 million, driven by a 203% increase in the number of enrolled members to 11,989. Sequentially (from the first quarter), revenue and the number of enrolled members rose 40% and 39%, respectively. 

Reported net loss widened slightly to $6.2 million, or $0.37 per share, compared to net loss of $5.5 million, or $0.34 per share, in the year-ago period. On an adjusted basis, net loss landed at $4.0 million, or $0.24 per share, little changed from a net loss of $3.8 million, or $0.23 per share, in the second quarter of 2019. 

Ontrak stock got a lift from the Teladoc-Livongo news because the market hated that news, driving both those healthcare stocks notably lower. It views Ontrak as a potential beneficiary of an ill-advised corporate marriage.

There are probably a few reasons the Livongo acquisition news didn't go over well in the market, including that some investors (or short-term traders) don't think it's a synergistic combination. Moreover, some Livongo investors likely aren't happy that the combined company will have a slower revenue growth rate than Livongo currently enjoys. While Teladoc is growing at rapid pace, Livongo has been growing even faster. 

This negative view also probably includes that some investors who might otherwise have invested in Livongo might now decide to invest in Ontrak, preferring to put their dollars behind a smaller, more narrowly focused digital healthcare company over Teladoc.

Here's the year-to-date stock performance picture for the three companies:

OTRK Chart

Data source: YCharts.

Now what

For full-year 2020, Ontrak management expects revenue of at least $90 million, representing growth of at least 156% from 2019. 

 

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Livongo Health Inc and Teladoc Health. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
$26.63 (0.80%) $0.21
Livongo Health, Inc. Stock Quote
Livongo Health, Inc.
LVGO
Ontrak, Inc. Stock Quote
Ontrak, Inc.
OTRK
$0.51 (4.34%) $0.02

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