Livongo Health (LVGO +0.00%) stands out as one of the stocks that have benefited tremendously from the COVID-19 pandemic this year. The company's digital health platform helps individuals manage chronic conditions like diabetes and hypertension. With the pandemic increasing the need for remote health monitoring and personalized healthcare, Livongo was in the right place at the right time.
Some investors were also in the right place at the right time by buying Livongo shares at the company's initial public offering last year. They've won big from the rise of the healthcare stock in 2020. Here's how much you would have now if you'd invested $10,000 in Livongo Health's IPO.
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Counting the cash
If you'd been able to buy at Livongo's IPO price of $28, an initial investment of $10,000 would have given you 357 shares. If we assume you didn't buy partial shares, you would've had a few bucks left over to buy a cup of coffee or two.
Of course, not everyone is able to get in on an IPO. Most investors have to wait until a stock begins trading to buy it. This would have made a big difference with Livongo's IPO. Its shares opened at $40.51 on July 25, 2019 -- nearly 45% above its IPO price. An initial investment of $10,000 at the market open of Livongo's first trading day would have gotten you 246 shares. You would've had over $34 left over; enough to buy a decent meal.
It's possible (and perhaps probable) that you would've regretted your investment for several months. Livongo closed out 2019 down more than 10% from its IPO price and down 34% from its first day of trading, but the stock went on a tear in 2020.
If you'd held onto your Livongo shares, you'd be sitting pretty now. An initial $10,000 in the company's IPO would now be worth nearly $50,000. Even if you had to wait until the stock began trading, your initial investment would have grown to more than $34,400. Either way, Livongo has been a big winner for early investors.
Behind Livongo's success
Based on the disappointing stock performance in 2019 compared to the great returns in 2020, you might think that Livongo's business wasn't doing very well until this year.
That's not the case at all.
At the end of 2019, 208,000 members used Livongo's diabetes management platform. The company had 771 clients, including more than 20% of the companies that made the Fortune 500 list in the previous year. Livongo's revenue soared 149% year over year in 2019, greater than its 122% revenue growth in 2018.
The reality is that Livongo's business was booming well before its stock performance reflected it. But, as mentioned earlier, the COVID-19 pandemic awakened many investors to the value that Livongo offered.
It wasn't just investors who realized Livongo's potential. In August, telehealth services leader Teladoc Health (TDOC +0.19%) announced plans to acquire Livongo for $18.5 billion in cash and stock. The news didn't help either of the stocks right out of the gate, but both Livongo and Teladoc shares have since climbed by double-digit percentages.
The future for Livongo
Some might think that Livongo stock is absurdly valued after the huge gains this year. My view, though, is that the company's growth opportunities make its valuation much more attractive than it seems.
Livongo has barely scratched the surface of an addressable U.S. market estimated to total nearly $47 billion. The company is also targeting other chronic conditions, including behavioral health issues, that present more avenues for growth. In addition, Livongo should have big growth opportunities outside the U.S.
Teladoc's acquisition of Livongo is expected to close by the end of this year. While Livongo will no longer be a stand-alone company, investors will still be able to profit as its business grows by owning shares of Teladoc. Both companies have excellent growth prospects that could be enhanced by combining their businesses. It's too late to get in on Livongo's IPO, but it's not too late to buy this high-flying stock.
