Invariably, with the role of digitization affecting every sector of significance, healthcare was bound to be affected. But as the novel coronavirus outbreak transitioned from a foreign crisis to a domestic one, the case for telehealth companies like Teladoc Health (NYSE:TDOC) surged. But now, TDOC isn’t the only pure-play name in this burgeoning market thanks to the debut of American Well (NYSE:AMWL). Since its first closing day, American Well stock is up over 50%.
Though a staggeringly positive performance, the enthusiasm for AMWL is understandable. For one thing, main rival Teladoc has seen its shares jump nearly 162% on a year-to-date basis. Psychologically, though, TDOC is trading hands at $218, which presents some issues for those who want to own whole unit shares. But with American Well stock, its equity units can be had for under $35.
As well, the coronavirus pandemic is basically rocket fuel for the telehealth market. Obviously, nobody really wants to sit around in a healthcare facility if they can avoid it. But by taking advantage of this new platform, patients can get the care they need while also protecting frontline workers. On the surface, it’s a win-win for American Well stock.
But before you dive into AMWL, there some headwinds to consider. First, Teladoc has accused American Well of patent infringement, which includes “multiple telemedicine carts and peripheral devices for use with them, such as the Thinklabs One Digital Stethoscope and the Horus HD Digital Scope System.” To be fair, AMWL denies the allegations. However, it’s a distraction that the company doesn’t need.
Second, and perhaps more critically, American Well stock is levered to the coronavirus. If we don’t have a second wave or the virus fades away next year, the case for AMWL may incur a steep correction. Since we’re well into this crisis, some might believe it’s imprudent to take a big risk into the telehealth market.
Extended New Normal Could Lift American Well Stock
While not taking anything away from the bearish argument, one factor that could help diminish concerns is the new normal. More to the point, what if the new normal were extended beyond what many assume is the end point? That would help support the bullish case for American Well stock.
Obviously, I don’t have a crystal ball into this matter. However, I think it’s well within the reason of possibility. For instance, both government agencies and the media have been responsible for spreading confusing or misleading information about Covid-19, which will likely result in a lack of trust moving forward.
Back in May, New York Governor Andrew Cuomo stated that the infection rate for his state’s healthcare workers was “about the same or lower than the infection rate among the general population.” But that contradicted data from The Lancet, which reported that, “Compared with the general community, front-line health-care workers were at increased risk for reporting a positive COVID-19 test.”
To remove any doubt about the data’s implications, The Lancet suggested that “Healthcare systems should ensure adequate availability of PPE and develop additional strategies to protect health-care workers from COVID-19, particularly those from Black, Asian, and minority ethnic backgrounds.”
As you know, The Lancet is a weekly peer-viewed medical journal. No offense to Governor Cuomo and the Empire State but I’d rather trust the professionals. And it’s more than likely that the American people mostly feel the same way.
You can garner further evidence for this dynamic by analyzing planned behavior. According to a study by Travis Credit Union, 58% of Americans “plan to stop using cash completely after the Covid-19 pandemic.” In other words, the risk of disease infection handling cash is not worth the transactional platform.
In that same vein, the public will probably shift as much of their medical services requests online as possible. Contactless services may be one of the semi-permanent components of our society post-pandemic.
Additionally, I mention The Lancet’s data because it confirms what we all suspected: if you’re in an environment where Covid-19 or other diseases exist, your chances of getting infected are higher.
Allow me to use a technical term, duh.
Thus, Americans have more than enough incentive to use telehealth services. And that bodes well, not only for American Well stock but for the broader industry.
Extensions Have Happened Before
Now, before you criticize me and call me an alarmist, just note that pandemics produce significant, lingering impacts. According to historical and sociological research on the Spanish flu, this pandemic “had long-lasting social consequences leading to a decline in social trust. We [the researchers] argue that this potentially resulted from the experience of social disruption and generalized mistrust which characterized the pandemic period.”
This decline in social trust is a concept that I’ve been hammering home recently. Genuinely, I believe that the changes forced upon us due to this unprecedented crisis will linger at least for a generation. Further, our diverse nation could suddenly see diversity not as a cause for celebration but for justifying suspicions.
I hope that won’t be the case. We are better when we unite for a common cause. But one thing is for certain. Contactless services will become more important in 2021 and beyond, bolstering the enthusiasm for American Well stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.