Ryan Irvine The segment will be called The Case For & Against a Stock. This week, Brennan will be providing the case for or the agreement for investing in WELL Health Technologies Corp. (WELL:TSX), and I will be apposing him with the case against slapping your hard earnings dollars down on this stock and Ryan will be arguing the case against Canopy at present. Aaron will act as the judge, jury, and ultimate executioner to determine who wins this grudge match.
Each participant will only get one minute to get out their argument.
The Case for and Against:
WELL Health Technologies Corp. (WELL:TSX)
Quick description: focused on consolidating and modernizing clinical and digital assets within the primary healthcare sector. WELL owns and operates 20 primary healthcare clinics, is Canada’s third largest digital Electronic Medical Records (EMR) supplier, and is a provider of digital health and cybersecurity related technology solutions.
Current Price: $7.84
Market Cap: $1.23 Billion
For Case:
- Digitization of healthcare is a massive opportunity for Well Health as the Canadian healthcare sector has been underdeveloped as a whole due to a large amount of fragmentation across provinces.
- Significant tailwinds driving digital health following COVID-19
- Especially among patient adoption of virtual/telehealth.
- Well Health has become the largest clinic operator in B.C., is Canada’s 3rd largest Electronic Medical Records (EMR) company and is now a provider of telehealth (as one of the top 3 telehealth providers in Canada). Showing that the company does have some legitimacy as they work into profit.
- Healthy Balance Sheet with $21 million in cash ready for future acquisitions.
- The company has completed well over 30 purchase agreements since inception and has over 100 possible assets in its M&A pipeline.
- Revenue has been growing at a very fast pace:
- 212% in 2019
- Anticipated growth of 34% in 2020
- And Anticipated growth of 37% in 2021.
- The company is in the right direction as Management expects Adjusted EBITDA to go positive in 2021 at $4.1 million.
Case Against
Number 1: While revenue grew 43% to $10 million in the last quarter, the business was EBITDA negative losing ($543 thousand).
Number 2: The highly attractive SaaS portion of digital services revenue which could support premium multiples, remain at only 20% of total revenue.
Number 3: High valuations. Enterprise value is $1.2 billion with trailing sales of only $35 million and negative cash flow. Well trades at 31 times sales well above its’ industry average of 8.
Number 4: Looking forward the optimistic estimates are for Well to lose ($0.07) per share this year, ($0.03) in 2021, and to break even on adjusted earnings in 2022. Trades at 100 times a guestimate of 2023 earnings.
Number 5: Look, there is a strong management with a great track record, the business is cashed up and ready to grow, but the company is riding telehealth mania and is ahead of its underlying cash flow – good business, not a good price near-term.
Win: Ryan
Ryan’s Additional Positive for WELL Health.
The management team has done it in the past. Hamed Shahbazi is the Founder who build TIO Networks which was a public company sold to PayPal for $304 million. The company also boasts Li Ka-shing, well-known Hong Kong investor as an early investor. Li Ka-shing is the 35th richest person on the planet – so there is a great track-record there.
WELL Health’s mission to modernize the Canadian healthcare industry by digitizing it, I believe is a great one. It is an industry in Canada that really hasn’t changed much for decades, the company has plenty of integration to do with a long growth runway. And they just raised $80 million to be able to acquire and digitalize other primary healthcare clinics.
Despite the run-up in its shares, insiders are not selling.