WELL is a small-cap stock ($628.3M market cap) with a beta of 1.34 and an increasing share count. Revenue growth has been excellent and a main driver for investor interest in the stock. It is not yet profitable, but is nearing profitability and is estimated to be profitable in a few years. It mostly has not generated positive free cash flows, with the exception of the last twelve months. The company has been a net issuer of shares and debt, but used most of its free cash flow over the past twelve months to add to its cash balance.
Cash is at $52.4M, its net debt stands at $315.3M, and its equity position has grown to $793.3M. A large majority of its total assets are from goodwill and intangibles, which can witness write-downs if the underlying assets decrease in value, causing its equity position to take a hit.
The upside potential is that it continues to grow, becomes profitable earlier than anticipated, continues to generate free cash flow, and reduces its debt/share count. The risks are that its goodwill and intangibles see a significant write-down, causing its equity/balance sheet to drop, and thus its valuation becomes less attractive, and if the company sees slowing growth with an inability to become profitable.
Management has done a good job of moving closer to a state of profitability and we are encouraged by its strong revenue growth rates. We are cautiously optimistic here, and feel that it is moving in the right direction and continued momentum would be a net positive for the company. (5iResearch)