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Looking for the Next Teladoc? This Under-the-Radar Small-Cap Stock Could Be It

By David Jagielski - Feb 20, 2021 at 6:20AM

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Well Health could become a big name in the healthcare industry.

Teladoc Health (TDOC -0.52%) has been one of the hottest healthcare stocks amid the pandemic. Its telehealth business is surging in popularity as more people are opting for virtual doctor visits over in-person office trips. After merging with Livongo Health last year, it's even bigger in size, with a market cap of more than $40 billion.

For investors wanting to invest in a company that's not as far along as Teladoc and still has plenty of room to grow, Well Health Technologies (WLYY.F -3.43%) could be a more attractive option. The company has a market cap of just over $1 billion and is deploying an aggressive growth strategy. The sky might just be the limit for this stock.

Stethoscope and pen laying on a laptop.

Image source: Getty Images.

Well Health has been wheeling and dealing

Well Health offers digital health solutions and also operates 27 in-person healthcare clinics in Canada. It's also a digital electronic medical records supplier. More than 10,000 doctors use its services. But the company has aspirations to be a whole lot bigger.

On its website, Well Health refers to itself as an "active acquirer of both digital assets and primary healthcare services." On those fronts, it hasn't been disappointing investors. In an update on Dec. 16, 2020, the company reported that it already closed seven transactions during the fourth quarter, which concluded at the end of 2020.

A day after the update, Well Health announced it would be acquiring Adracare, which is a practice management platform that nearly 7,000 practitioners use across multiple countries. It offers online booking services, virtual waiting rooms, in-session charting while taking video calls, and digital-intake forms. But with annual revenue of about 2 million Canadian dollars (CA), Adracare isn't the type of acquisition that will make Well Health bigger overnight. However, by adding to its competencies and capabilities, Well Health will become stronger over the long term.

The acquisition that has investors of the Vancouver-based company most excited is its recent purchase of CRH Medical, which it announced earlier this month. CRH offers anesthesia services and treats patients with hemorrhoids using its O'Regan System. Not only does the move expand Well Health's current offerings, but it also extends its reach into the U.S. market, as CRH has made 32 anesthesia-related acquisitions of its own. That segment of its business is active in 14 states, and patients have access to its O'Regan System in 48 states.

The company is on track to generate annual revenue of more than CA$150 million. That's a big boost for Well Health, which, over the trailing 12 months, reported just CA$43 million in sales.

Well Health first entered the U.S. market when it completed the acquisition of a majority stake in Circle Medical on Nov. 13, 2020. The U.S.-based telehealth provider has relationships with insurers that reach 200 million Americans and expects to generate annual revenue of approximately CA$7.2 million.

Why these moves are great for the company

There's been lots of excitement surrounding Well Health's stock over the past year, as its value is up more than 330% during that time. By comparison, the S&P 500 has climbed just 16%, and even Teladoc, which generated returns of just over 150% as of Feb. 17, is nowhere near this up-and-coming company. 

Anytime a company expands its core competencies or breaks into new markets, there's opportunity for significant growth. That's why these acquisitions put Well Health's stock on the path for more potential gains. Investors are often drawn to fast-growing companies, and Well Health is certainly no exception.

The company last released its quarterly results on Nov. 12, 2020, in which sales for the period ending Sept. 30, 2020 totaled CA$12.2 million and were up 50% from the prior-year period. Well Health credited the growth to both acquisitions and increased demand for telehealth. While the company doesn't specifically list telehealth as a segment, it reported sales from digital services totaling CA$2.5 million during the period, which was more than double the CA$997,000 it generated a year ago. And that segment now accounts for 20% of its total revenue, up from 12% in the prior-year period.

Well Health now says it's at a run rate, or on pace for, CA$68 million in annual revenue. However, given that the company has kept growing and acquiring businesses, those numbers will likely get updated when Well Health releases its year-end results, which could come next month.

Is Well Health a buy?

It's tempting to buy Well Health stock, given all this growth. And when compared to Teladoc, it trades at an appealing forward price-to-sales (P/S) ratio:

WELL PS Ratio (Forward) Chart

WELL PS Ratio (Forward) data by YCharts

But with Well Health's CA$9 million in losses over the past four quarters and negative free cash flow, it may not be a smooth path forward, especially given all the companies it's integrating into its business, as well as the cost inefficiencies and redundancies it will need to weed out. However, for growth investors willing to take on a bit of risk, Well Health could be a hot healthcare stock that's worth holding onto for many years. 

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Stocks Mentioned

WELL Health Technologies Corp. Stock Quote
WELL Health Technologies Corp.
WLYY.F
$2.90 (-3.43%) $0.10
Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
$32.74 (-0.52%) $0.17
CRH Medical Corporation Stock Quote
CRH Medical Corporation
CRH

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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