Ranging from a pandemic darling to a recent initial public offering to a company up over 400% over the last decade, the three businesses in this article could help power you toward retirement.
Maybe you are curious about the turnaround story at Teladoc Health (TDOC +0.47%), whose stock is down 85% in the last three years and trading at just 1.7 times sales. Or perhaps you're interested in buying great cash generators like Doximity (DOCS +0.27%) or Idexx Laboratories (IDXX +0.45%) at a fair price.
Regardless, these three healthcare stocks are intriguing candidates to buy and hold forever, depending on your risk appetite. Let's explore what makes each so promising.
1. Teladoc Health: Is profitability incoming?
Teladoc, with its whole-person virtual care, was a leading example of a pandemic darling. Pre-pandemic, 65% of physicians in the United States had never used telehealth technology. By the middle of the pandemic, this figure had dropped to just 2%, helping to send Teladoc's share price through the roof.
But because of the company's disastrously timed Livongo acquisition and a market frowning upon unprofitable upstarts amid today's rising interest rates, the share price crashed.
NYSE: TDOC
Key Data Points
So what makes it interesting now?
First, although the pandemic has subsided, only 7% of physicians do not use telehealth offerings today, meaning that the vast majority of those who adopted it during the pandemic continue using it. This is crucial for Teladoc's investment proposition since it shows a longer-term shift toward its services instead of its merely being a pandemic darling.
Second, the company's expansion into the pre-diabetic and weight loss space with its chronic care is a new growth vertical. Teladoc provides a solution for patients to diagnose, monitor, and try to alleviate this condition.
The company is not yet profitable, but it is trending in the right direction. Management expects its 11% net profit margin to continue improving throughout the year. With a price-to-sales (P/S) ratio of just 1.7, Teladoc's new growth plans and steady BetterHelp psychotherapy segment make it a tremendous lifelong holding to purchase in May.
2. Doximity's cash machine keeps firing on all cylinders
Doximity, which went public in 2021 with a platform focused on medical professionals, has yet to rebound in a challenging environment for growth stocks. However, unlike most young growth stocks, Doximity is arguably very profitable.
In its most recent quarter, the company recorded a 29% net profit margin and a 29% free cash flow (FCF) margin -- even after removing stock-based compensation. Even more incredibly, this strong cash generation came with 18% sales growth during the quarter, powered by strong dollar-based net retention (DBNR) among its largest pharmaceutical customers.
NYSE: DOCS
Key Data Points
DBNR measures how much more a company's existing customer base spent from one year to the next, including churn. Typically, a mark above 120% is considered excellent, making Doximity's 127% figure across its 20 largest customers very promising.
Operating in three segments -- marketing, telehealth, and hiring -- the company resembles a version of LinkedIn for medical professionals. Doximity's platform is used by 80% of physicians and 90% of graduates, making it a valuable pharmaceutical advertising space. With physicians influencing roughly three-quarters of the $4 billion U.S. healthcare market, it is no wonder pharma and hospital systems are flocking to the app to use their marketing spend.
Its Amion work-scheduling service, Dialer video-calling solution, and various digital productivity improvements get heavy use among medical professionals. Similarly, its access to such a large network of verified medical professionals makes it a valuable source for recruiters looking to fill positions -- rounding out a well-diversified offering from the company.
Trading at 52 times FCF (minus stock-based compensation), Doximity is by no means cheap. However, its steadily growing sales account for less than 5% of the 415 largest prescription brands' estimated marketing spending, indicating that this growth story is just starting.
3. Idexx's installed base of equipment is unrivaled
Idexx, a provider of veterinary diagnostics and software, combines two of the investing world's favorite things: recurring sales and high switching costs. Once a veterinary clinic installs one of Idexx's wide variety of diagnostic instruments, it remains incentivized to stay within the company's ecosystem -- buying consumables, software, and services for the equipment.
The company maintains a strong customer gross retention rate of around 97%. Idexx saw 86% of its sales in the first quarter of 2023 come from recurring sources, like the consumables mentioned above.
Thanks to this modern-day razor-and-blades model, the company has posted sales growth of 160% over the last decade. What is jaw-dropping, however, is that over this same time, earnings per share (EPS) have nearly quintupled.
IDXX Revenue (TTM) data by YCharts. TTM = trailing 12 months.
Leading this incredible charge in EPS is Idexx's top-tier return on invested capital (ROIC) of 37%. ROIC measures a stock's profitability as compared to its debt and equity. A percentage above 15% is considered exceptional, but the company has averaged around 30% over the last 10 years. It has a lengthy history of strong pricing power and profitability -- two signs of a wide moat.
The stock trades at a lofty 49 times next year's earnings. The market is well aware of the company's dominant position and is giving it a premium valuation. But prudent investors who are thinking decades ahead -- and maybe dollar-cost averaging -- realize that Morgan Stanley's estimate of 8% growth in the pet care industry through 2030 is more than enough to support Idexx's valuation.
With millennials and Gen Zers prioritizing pet care -- and with 95% of current pet owners considering their companion animals a part of the family -- look for Idexx to thrive in its leadership position.
