Healthcare spending in the U.S. is estimated to reach as much as $6.2 trillion by 2028. Yet investors have appeared to be skeptical about several emerging healthcare companies and their ability to continue growing amid competition in a complicated industry.
These three healthcare companies have continued to execute, showing consistent growth that could make them rewarding long-term investments.
1. Teladoc Health
In a crowded and competitive industry, virtual healthcare company Teladoc Health (NYSE: TDOC) is seeking to distinguish itself in both the U.S. and abroad through a personalized, digital-first approach to medicine.
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Its virtual model provides patients an innovative "all-in-one" format, offering access to primary care, mental healthcare, and chronic-condition management. And its network of board-certified physicians provide telephone consultations -- at any hour, day or night -- for routine, non-emergency medical problems and prescribe medication when needed.
Teladoc built this system by acquiring Livongo for $18.5 billion in cash and stock in 2020. Livongo uses data and artificial intelligence to manage chronic conditions with services tailored to patients' individual needs.
The combined entity is growing rapidly. Teladoc grew revenue to $503 million in its 2021 second quarter, a 109% year-over-year increase, and now has 52 million paid users in the U.S. It works primarily with employers and insurance companies to give patients access to its services.
The stock trades at a market capitalization of $22 billion, just marginally over the price it paid to acquire Livongo, which shows how dramatically the value of Teladoc's business has fallen. Investors have soured on the company because of the crowded, competitive landscape -- with both big-tech and independent businesses battling for healthcare market share.
However, Teladoc has proven to have staying power thus far while some competitors like Alphabet have quit their efforts. If the company continues to grow in the face of competition, investors could begin to give it more credit than they have recently.
Teladoc is expected to hit $2 billion in revenue this year, valuing the stock at a price-to-sales ratio of 11, a reasonable valuation considering the company's triple-digit revenue growth. A handful of unprofitable software stocks trade at much higher P/S ratios while growing revenue at a slower rate.
As the business grows and its whole-person healthcare model begins to prove its value, investors could eventually turn positive on the business and reward the stock with a higher valuation.
2. Hims & Hers Health
Another intriguing telehealth business is Hims & Hers Health (HIMS 1.87%), which has differentiated itself as a consumer-facing brand. It offers free and low-cost telehealth services directly to consumers (it doesn't require insurance) and sells prescriptions and supplements delivered to the patient's door.
Launched in late 2017, the company has already provided 3.9 million consultations and signed on 453,000 subscribers. Subscriptions start at about $20 per month and vary by what medications are used by patients. A consultation with a primary care provider will run you $39 for a visit.
The result is that management is guiding for full-year revenue of $255 million, a 71% increase over 2020. Despite this strong revenue growth, the stock trades at a P/S ratio of just 6.6, a discount to other telehealth companies like Teladoc.
So why are investors so skeptical about Hims & Hers? The company went public via a merger with a special purpose acquisition company, or SPAC. Some SPAC companies have misled investors with over-promised projections and, in some cases, fraud. However, Hims & Hers is actually growing ahead of the growth numbers it presented before going public.
It may take some time for investors to realize that not all SPAC stocks are poor investments, and Hims & Hers will prove itself if it continues to grow and beat expectations in the quarters to come.
3. GoodRx
For those looking to save money on medications, GoodRx Holdings (GDRX 1.55%) believes it has the answer. The U.S. healthcare technology company lets users source their prescription drugs for the lowest possible cost through its mobile app and website. It partners with pharmacy benefit managers (PBMs), who negotiate drug prices between the drug manufacturers and employers/insurance companies.
GoodRx displays all of the contracted prices between PBMs and various pharmacies so that consumers can find the lowest prices. It's like having a price-checking tool for prescription drugs. PBMs work with GoodRx because they receive a cut of each sale, and GoodRx makes money by taking its own cut.
The company is steadily growing with 6 million monthly active users as of the second quarter of 2021 -- a year-over-year increase of 36%. Revenue increased 43% over the same time period and is expected to total $748 million for the year -- also a 36% increase over 2020.
However, the stock price has suffered since earlier this year when retail giant Amazon announced it was entering the pharmacy business, and it hasn't yet regained the momentum following its IPO. At a market cap of $17 billion, the stock's P/S ratio is 22.6. This isn't necessarily cheap compared to the other stocks on this list.
However, GoodRx is still largely misunderstood by investors who mistake it for a pharmacy rather than a technology platform. If the company can continue to grow and begin expanding its services, investors could quickly change their minds about the stock.
Here's the bottom line
These healthcare stocks all bring something unique to the industry, which could eventually win over investors who remain skeptical because the U.S. healthcare industry is so complex and competitive. In a stock market at all-time highs, these misunderstood companies and reasonably priced stocks could prove to be rewarding opportunities for patient investors.
