Do you like to buy things that are brand spanking new? If so, you're in luck when it comes to opportunities to invest in the healthcare sector. Several healthcare companies recently conducted initial public offerings (IPOs).
Two of the hottest healthcare IPO stocks on the market right now are American Well (AMWL 5.80%) and GoodRx Holdings (GDRX -1.80%). In only a matter of days, Amwell's shares have jumped 26%, while GoodRx stock has climbed 18%. But which of these IPO stocks is more likely to make you rich going forward?
Let's first look at the two companies' growth opportunities. Both Amwell and GoodRx operate in markets with plenty of potential.
Amwell focuses on providing telehealth services to health plans and health systems. Its clients subscribe to use the company's telehealth platform. In addition, its Amwell Medical Group (AMG) business employs more than 5,000 healthcare providers that can augment Amwell's customers' staff.
The current addressable telehealth market for health plans and health systems totals around $12.4 billion annually. The market for AMG's services is around $18.2 billion in urgent care and $3.9 billion in telepsychiatry. Amwell's combined current market opportunity totals $34.5 billion. The company generated revenue of nearly $149 million last year.
GoodRx provides a platform for consumers that allows them to compare prescription drug prices and gives them a card for discounts on medications. The company has expanded its offerings to also include online telehealth visits with healthcare professionals and comparisons of lab testing prices.
The total addressable market for GoodRx is massive -- perhaps as big as $800 billion. Most of this opportunity focuses on lowering the cost of prescription drugs, but GoodRx also thinks that its telehealth opportunity stands at close to $250 billion annually.
If Amwell and GoodRx could count on capturing significant chunks of their respective markets, both stocks would be slam dunks. However, the two companies face similar challenges.
Most importantly, other rivals are going after the same markets. Teladoc Health, for example, stands as a formidable competitor for both Amwell and GoodRx in the telehealth arena. Not only is Teladoc significantly larger than both companies, but it also offers a broader range of virtual care services that will grow even larger once its pending acquisition of Livongo Health closes.
GoodRx's prescriptions market is highly fragmented. The good news is that the company is bigger than its competitors, which should give GoodRx an advantage in scale. However, there's a risk that pharmacy benefits managers (PBMs) or pharmacy retailers could offer products and services in the future that directly compete against GoodRx.
Amwell faces a somewhat similar threat. The company currently partners with major electronic health record (EHR) system vendors such as Cerner. It's possible that these EHR vendors could decide to build their own telehealth functionality in the future and cut out Amwell altogether.
The better bet
At first glance, GoodRx appears to be an easy pick over Amwell. It's already profitable, while Amwell isn't. It has a bigger addressable market. And it's the 800-pound gorilla in its core prescriptions market, while Amwell is a distant No. 2 in its core telehealth market. But there are a couple of key factors that I think tip the scales in favor of Amwell.
First, Amwell's revenue is growing at a significantly faster rate than GoodRx's revenue is. What's more, GoodRx expects that its growth rate will slow down.
I think the opposite will be true for Amwell. The telehealth market is picking up steam, fueled by the COVID-19 pandemic. It also helps that Google is a key investor and partner with Amwell. This relationship could open up more growth opportunities for Amwell in the future.
Second, Amwell's market cap is less than one-third that of GoodRx, while its revenue is nearly half as much as that of GoodRx. Neither stock is cheap, but GoodRx's nosebleed valuation is gushing more blood than Amwell's.
My view is that for now, at least, Amwell is more likely to make you rich over time than GoodRx is. However, I'm not recommending investors buy either stock at this point. Why? I think there are even better stocks that will make you even richer over the long run.