Going against the market's views on a stock can be risky, but it can also lead to some incredible returns. That's because a beaten-up stock may be trading at a relatively low valuation, and as long as the fundamental business remains sound, a recovery could be in the cards.
Amwell (AMWL 1.56%) and BlackBerry (BB 2.73%) have fallen hard of late. Both are down by more than 50% from their 52-week highs as investors have gravitated toward more value-oriented investments. And while there is some risk with these two businesses, each may still be worth taking a chance on.
Why Amwell could rebound
Telehealth company Amwell (formerly known as American Well) went public in September, and while it started out strong, the stock has had a rough ride in recent weeks. At the close Monday, it was going for just over $17, which is far cheaper than the $25.51 it opened at on its first day of trading. Even though the company hasn't been performing badly at all, it's down by 49% since Feb. 1, over which time the S&P 500 has gained nearly 8%.
Amwell is coming off a strong fourth quarter during which it recorded 1.6 million telehealth visits -- a 300% increase from the prior-year period. Meanwhile, its revenue grew by 34% year over year to $60.4 million. Amwell released those results on March 24, but they haven't done much to change the stock's trajectory.
There are a couple of likely reasons why investors have been bearish on Amwell. The first is that its valuation relative to sales was a bit high -- as of early February, it was trading at a larger premium than rival Teladoc.
But the sell-off has changed that. Now, Amwell looks like a much better buy.
Another reason that investors may be hesitant to invest here is that Amazon recently announced plans to offer telehealth services (under Amazon Care) to other employers for their own workers. However, Amwell co-CEO Ido Schoenberg said he isn't all that worried, asserting "that what they bring to certain employers could be very helpful and yet does not compete directly with most of the value proposition that we offer at this time."
It's far too early for investors to predict how big a player Amazon might become in telehealth, or to know what breadth of services it might offer. And its arrival in the space is no reason for Amwell shareholders to worry -- Amwell has a big head start. Last year, the healthcare company built up the number of active providers using its platform by 950% to approximately 72,000. Those relationships give it a significant advantage over a new entrant, even Amazon. In addition, while people are comfortable with the tech giant in their role as customers, it could take a while for it to gain their trust as patients.
Although Amwell's share price is way down, investors shouldn't count the stock out. There are plenty of opportunities still ahead for the business. For 2021, it is forecasting that its revenue will come in as high as $270 million -- 10% more than the $245.3 million it reported this past year. However, analysts expect the telehealth industry as a whole to climb at a compound annual growth rate of 37.7% over the next four years. Amwell's projections could therefore prove to be a bit conservative, especially since COVID-19 remains a threat and many people may still not be eager to venture to the doctor's office this year.
Between its now-cheaper valuation and its attractive long-term growth prospects, Amwell could make a great contrarian buy.
BlackBerry is a long-term bet
Shares of BlackBerry soared earlier this year to heights the company hasn't seen since it was a popular cellphone maker. Today, its business centers around cybersecurity and providing services for enterprises. But the problem is that the growth numbers aren't there yet -- at least not on a consistent basis. On March 30, the company released its fiscal fourth-quarter 2020 numbers, and its sales, at $210 million, were down 4% from the previous quarter. Also, for the period, which ended Feb. 28, its net loss of $315 million more than doubled in size sequentially.
Although the intervention of the WallStreetBets crowd and trend-following traders likely sent the stock to prices it should never have reached this year, BlackBerry is now back to around where it was in early January. And at a price-to-sales multiple of less than 6, it's cheaper than the average stock in the Technology Select Sector SPDR Fund.
And there's good reason to anticipate that its sales numbers will get stronger. In December, the company announced that it would be working with Amazon Web Services to provide automakers with cloud-based information through its BlackBerry IVY software, which collects data from cars' sensors. One example of its value is identifying hazardous road conditions so that drivers can be alerted to risks. Such software could also let parents know if their teenage children are speeding or texting while driving. But it could take a while for that deal to generate long-term sales growth for BlackBerry, as it would still need to get automakers to sign up.
Overall, this is a stock that's going to require some patience for investors. Sales are lackluster and profitability remains a challenge, but this has the potential to be a great long-term investment. With gross margins of more than 70%, if BlackBerry can bolster its sales numbers, profits may soon follow, and that could make the stock a hot buy.