111 (YI 2.83%) is a severely undervalued telepharmacy that is rapidly expanding across all of China. The stock trades at less than 0.4 times revenue with a market cap of less than $500 million, despite showing no signs of stalling. It is quite obvious investors are heavily discounting its potential as part of a broad sell-off in Chinese stocks due to fears of regulatory crackdowns.
But there's a key reason that won't happen to 111. Let's look at why the company is unique and what makes it a value stock that investors can count on for price appreciation.
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The big kicker
111 is currently the biggest telepharmacy in China, surpassing both Alibaba Group Holding subsidiary Ali Health and JD.com's JD Health International. Its platform caters to a wide range of consumer needs, including branded medications, generic drugs, vitamins, contacts, medical devices, beauty products, reproductive health products, maternity care products, traditional Chinese medicine, and diagnostic tests. 111 partners with over 340,000 pharmacies out of approximately 500,000 in China and holds a stunning 60% market share in the space.
But get this: The vast majority of the company's revenue comes from rural areas, where there is still a lack of proper medical infrastructure. Due to this essential nature, 111 is largely able to stay clear of the Chinese Communist Party barreling in on rising tech monopolies. As a result, the company has not seen any internal regulations that hurt its bottom line despite holding a dominant position in the sector. In addition, 111 does not ask for exclusivity from its suppliers, so it's not part of the predatory practice of squeezing out its competitors.
What's also unique is that 111 does not seek to expand into virtual health consultations. The wisdom there is evident, with companies such as Teladoc Health, Amwell, and Ontrak seeing their margins squeezed in this increasingly commoditized sector. Instead, the company is partnering with multinational biotechs such as BeiGene (BGNE 6.15%) and Bayer (BAYR.Y 0.20%) to help them access the vast number of doctors and patients in the Mainland China market.
Robust financials
Since its IPO three years ago, 111 has continuously grown its revenue by 65% to 142% per quarter, year after year, bringing the total to $395 million as of the first quarter of 2021. At the same time, its net loss has shrunk to near breakeven from 22.3% of revenue during that time. Even adjusted for a one-time bonus in sales of COVID-related medical supplies and equipment last year, revenue growth is still going strong. In second-quarter results due later this month, the company expects revenue to increase by 85% year over year at the midpoint.
In terms of capital management, 111 is also doing a great job, with $125.5 million in cash on its balance sheet and no long-term debt whatsoever. I'd expect further consolidation in a fragmented market, and the company may partner with foreign pharma giants that wish to expand in China as prime catalysts for growth. On top of that, its ability to steer clear of Machiavellian regulations makes the stock a strong buy.
