When the market turns sour, companies with bright prospects can often trade like those whose future looks bleak. It's up to investors to sift through the pile and figure out which ones are offering an enticing risk-reward ratio.
Sitting in the bargain bin now are three healthcare stocks that have the makings of long-term winners. Shares of Teladoc Health (TDOC 3.05%), GoodRx Holdings (GDRX +1.39%), and BioNTech (BNTX +3.83%) have been beaten down. But digging into each business paints a rosier picture than a stock chart would lead you to believe.
Image source: Getty Images.
1. Teladoc Health
Telemedicine was an obvious winner during the pandemic. It's why shares of Teladoc nearly tripled from January through the end of July of 2020. That's just before it announced an $18.5 billion acquisition of Livongo, a company offering digital chronic-care management tools.
It was a huge price to pay, and it was widely panned by analysts. In hindsight the purchase was sending a clear message. The days of growing membership were over -- at least for a while. Teladoc needed to offer more services if it was going to keep growth alive. Looking back to 2017, the company was consistently adding members through the early months of the pandemic. But the pandemic rush sucked the sales pipeline dry. Membership growth flatlined, and the stock fell 77% from its high.
Data source: Teladoc Health. Chart by author.
Teladoc has now digested Livongo and delivered on the promise of a broader portfolio of services. That has pushed the average annual revenue per member up to $2.49 -- it closed 2020 at $1.63 -- and 80% of last year's sales were for multiple products.
Most importantly, management appears to be getting its financial house in order. Teladoc has generated cash from operations for three straight quarters and although it's still projected to lose money this year, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are forecast to rise 23% to 33%. If the company can continue to inch toward profitability while maintaining respectable growth, Wall Street might recalculate Teladoc's potential.
2. GoodRx Holdings
Prescription drug prices have been a hot-button issue for at least two decades. Despite the focus, they've continued to rise; prices are up 35% since 2014. One in three Americans say they've skipped filling a prescription due to cost. It's understandable. According to a study published in the American Journal of Public Health, two-thirds of all personal bankruptcies are tied to medical costs.
GoodRx helps consumers find discounts through its website and mobile app, and tells users where to find the lowest prices for their medications. The number of users has been growing steadily.
Data source: GoodRx Holdings. Chart by author.
Part of that growth came from acquisitions. GoodRx has been rolling up competition with the purchases of Scriptcycle in August 2020 and RxSaver in April 2021. Although subscriptions -- which offer exclusive access to deep discounts -- have also grown, they make up only 8% of overall revenue.
The New England Journal of Medicine estimates that non-adherence to prescriptions costs the healthcare system $300 billion per year. And GoodRx management believes that 20% to 30% go unfilled in the U.S. every year. That offers an enormous opportunity for the company to show value. And all parts of the value chain -- the company, insurers, providers, and patients -- have an incentive to see it succeed.
3. BioNTech
When BioNTech went public in 2019, it was focused on personalized cancer therapy. A year before that, Pfizer had invested cash to collaborate on an influenza vaccine using BioNTech's messenger RNA (mRNA) platform. The work would morph into a vaccine that saved millions of lives from the novel coronavirus.
The company earned about $12 billion last year. And although it has orders for 2.4 billion more jabs in 2022, it hasn't been sitting still. It's spending that windfall developing new drugs that harness the power of the immune system to fight disease. Despite that, shares are down 62% from the highs they reached in 2021.
BNTX Cash and Short Term Investments (Quarterly) data by YCharts.
Management has called out several clinical priorities, including advancing more treatments using its mRNA platform. It has specifically pointed to its partnership with Pfizer on vaccines for shingles and influenza. It also has five cancer-fighting candidates in randomized phase 2 trials.
BioNTech believes that mRNA and synthetic biology are moving humanity into a new era of medicine, which is hard to argue with after the past two years. The company is a leader in mRNA technology, has multiple other innovative approaches, and partners with some of the largest disease-fighting organizations on earth. Add in deep pockets, and you likely have the recipe for a winning stock for investors with patience.
