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Should You Buy This Upbeat Telehealth Stock?

By Zhiyuan Sun - Jun 15, 2021 at 7:32AM

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UpHealth is trading at a severe discount to peers.

On June 10, telemedicine start-up UpHealth (UPH 3.69%) debuted on the market after merging with special purpose acquisition vehicle (SPAC) GigCapital2. The deal values the company at a market cap of $1.4 billion.

Competition is getting fierce in the telehealth industry. There are now at least 10 large-cap players, including big names like Amwell (AMWL 7.54%) and Teladoc (TDOC 0.05%), that are seeking to provide the best quality of care to patients. Does UpHealth stand a chance in this fierce environment? 

Doctor taking notes during online consultation.

Image source: Getty Images.

Can you count on UpHealth? 

UpHealth is an integrated virtual care provider consisting of five segments. First, subsidiary Thrasys provides primary care and chronic care management to many governments and health providers, covering a total of 6 million lives. Next up is Cloudbreak, which offers medical interpretation solutions (such as translation services) to over 1,800 healthcare venues across the country.

Another segment, Glocal Healthcare, provides digital care to 10 government/provincial agencies. Management expects up to 9 million virtual health encounters this year in this segment from just one province in India.

UpHealth's signature feature is its MedQuest Pharmacy, offering full prescription services to 13,000 physicians in 50 states. Finally, it has a team of 29 psychiatrists and 170 health professionals providing behavioral health and substance abuse consultations.

In the first quarter of 2021, UpHealth generated $31 million in revenue and $3 million in operating income less non-cash items (EBITDA) from over 100,000 visits per month. About 77% of its sales are domestic. Thanks to its medical translation services, which offer virtual care in more than 250 languages, the company has been doing well in international markets.

UpHealth is on track to bring in $185 million in revenue and $18 million in EBITDA this year, representing a 58% and 125% increase over 2020 levels, respectively. Despite this tremendous amount of growth, UpHealth stock is only trading for 7.1 times revenue. That's pretty cheap compared with the industry average of 11.8. Keep in mind that many telehealth companies cannot break even in terms of EBITDA. 

What's the verdict?

Based on the robust growth of the company's international revenue, UpHealth's management anticipates they can further increase revenue and EBITDA to $346 million and $69 million, respectively, next year. Capital management-wise, UpHealth got just what it needs from the GigCapital merger for expansion.

The agreement infuses UpHealth with a total of $404 million in cash. As a result, it has only $255 million left in convertible note liabilities to cover. Investors shouldn't worry about its ability to service that, though. Its current guidance indicates that it is very close to generating a positive net income. Overall, given its high quality of care, service coverage, scalability, and discount to peers, UpHealth is a promising healthcare stock to buy now. 

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amwell and Teladoc Health. The Motley Fool has a disclosure policy.

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Stocks Mentioned

UpHealth, Inc. Stock Quote
UpHealth, Inc.
$0.68 (3.69%) $0.02
Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
$37.48 (0.05%) $0.02
American Well Corporation Stock Quote
American Well Corporation
$4.99 (7.54%) $0.35

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