Telehealth platform American Well (NYSE:AMWL), which some people abbreviate as AmWell, is definitely what I would classify as a “right time, right place” type of company. Indeed, as we round out the final months of 2020, it’s a great time to invest in remote-health services through a long position in American Well stock.
Not everyone concurs with me on this point. In particular, InvestorPlace contributor Vince Martin put American Well at the top of his list of seven red-hot initial public offerings (IPO’s) to ditch now.
Martin’s article is excellent, and I suggest that you check it out. Moreover, his counterargument against owning American Well stock is worth considering, so I’ll address it soon.
One of my primary arguments in favor of American Well stock is that it’s cheaper than its chief competitor in the telehealth space. I’ll also attempt to show that in the age of the novel coronavirus, the telehealth field is so extensive that there’s enough room for American Well and its shareholders to thrive.
A Closer Look at American Well Stock
American Well stock had its IPO on Sept. 17 amid much fanfare and buying frenzy. The original plan was to sell the shares within a price range of $14 to $16. Later on, that figure was upped to $18.
What happened next is typical during this era of IPO hype; American Well opened at $25.51 per share and closed the trading session with a 42% gain.
The buying frenzy was likely boosted by the fact that American Well is backed by none other than Google (NASDAQ:GOOGL,NASDAQ:GOOG). During a private placement concurrent with the IPO, Google agreed to buy $100 million worth of the Class C shares of American Well stock.
Since its IPO only occurred a short time ago, American Well stock is still undergoing the process of price discovery. Therefore, don’t be surprised if the company’s share price gyrates in both directions for a while.
Still, for the time being at least, the trend is decidedly higher. In fact, American Well stock holders managed to keep its share price above $35 on Oct. 16. And so, based on its current trajectory, I definitely wouldn’t recommend attempting to short-sell this particular stock.
A Growing Field
Judging by some recent data, it’s evident that the telehealth market in general and American Well in particular are in hyper-growth mode. As you might expect, the primary growth catalyst is and will continue to be the spread of the coronavirus.
First, let’s take a closer look at the telehealth field in general. According to research conducted by American Well, telehealth usage has increased strongly in 2020. Last year, only 8% of consumers had a virtual visit with a doctor, while that number spiked to 22% this year.
Moreover, 80% of physicians engaged in a virtual visit in 2020. That figure was only 22% in 2019. As the world faces a potential second big wave of Covid-19 infections, I personally expect the trend in favor of telehealth usage to persist through 2021 at least.
As a counterpoint to this, Martin makes a valid point that there will be strong competition in the telehealth field. He states, “The merger of Teladoc Health (NYSE:TDOC) and Livongo Health (NASDAQ:LVGO) is likely to create the telehealth leader in the United States, and potentially internationally.”
Convincing Data for American Well
I hope that the aforementioned data points will present a sufficiently compelling argument that the telehealth field is big enough for Teladoc Health and American Well to coexist.
Furthermore, I would propose that American Well is growing at a fast enough rate to actually present a threat to the admittedly more famous Teladoc Health. Here’s a roundup of bullet points in favor of American Well:
- The company works with 55 health plans supporting more than 36,000 employers and collectively representing over 80 million covered lives.
- Those health plans represent 150 of America’s largest health systems, including over 2,000 hospitals.
- American Well has powered more than 5.6 million telehealth visits for the company’s clients. During the six months that ended on June 30, the company powered over 2.9 million of these telehealth sessions.
- 700,000 telehealth visits were recorded for American Well during the first quarter of 2020. In Q2, that figure shot up to 2.2 million.
- The company’s revenues were growing even prior to the coronavirus pandemic. Thus, America Well’s 2019 revenues of $149 million in 2019 represented a 31% increase, compared to its $114 million of revenues in 2018.
These numbers are impressive and present a strong case in favor of owning American Well stock. It’s also important to know that American Well’s shares are much less expensive than Teladoc Health’s stock. Consequently, folks with smaller trading accounts might find it more feasible to invest in American Well.
The Bottom Line
There’s no way to predict the course of the coronavirus’s second wave. What we do know for certain, though, is that the trend towards telehealth is increasing.
This fact favors both American Well and Teladoc Health. However, American Well stock is more affordable than Teladoc Health’s shares. In addition, American Well’s growth rate should convince the skeptics that it is an investment worth considering.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
