The future of telehealth stocks looks bright. This is an emerging sector that saw growth catalyzed by the novel coronavirus pandemic.
That isn’t to say this sector’s growth hasn’t been hard-earned after years, even decades in the making. But like the remote work industry, telehealth and telemedicine have certainly received a shot in the arm this year. And with flu season imminent, there’s even more reason to seriously consider these stocks.
In fact, according to one report, telemedicine should account for 20% of all medical visits in 2020. The value of those visits was estimated at more than $29.3 billion. And while the pandemic has provided a short-term boost, the long-term picture looks similarly bright for telemedicine. Importantly, telemedicine is then projected to rise to $106 billion in value by 2023. That alone should allay investor fear that growth will subside in the wake of the coronavirus pandemic.
It also suggests a compound annual growth rate of 53.5%. Therefore, it should surprise no one that investors are keen to learn more about securities within this sector.
Here are 7 telehealth stocks to buy ahead of flu season:
- Global X Telemedicine & Digital Health ETF (NASDAQ:EDOC)
- Teladoc (NYSE:TDOC)
- iRhythm Technologies (NASDAQ:IRTC)
- GoodRX Holdings (NASDAQ:GDRX)
- Humana (NYSE:HUM)
- Castlight Health (NYSE:CSLT)
- American Well (NYSE:AMWL)
Growth in telehealth will be further tested by the upcoming flu season. Telehealth companies can expect an uptick in users in the fall and winter months this year as pandemic worries will cause a decline in face-to-face visits.
Telehealth Stocks To Buy: Global X Telemedicine & Digital Health ETF (EDOC)
As an ETF comprising multiple holdings, EDOC stock is a safer way to invest in telehealth than individual stocks.
EDOC attempts to match the performance of the Solactive Telemedicine & Digital Health Index. This is a very new stock, having been listed in late July. Prices have risen from $15.57 to $17.87 since then, and it should be a solid play on overall sector growth. The biggest holding in this ETF is a company called iRhythm Technologies, covered later in this article.
Therefore EDOC stock has proved 14.77% returns in its short life, which should be considered a good thing. As I mentioned it has been flat since it was listed in late July. Investors could also consider this a positive in that EDOC is representative of an emerging sector pegged for growth. Since we’ve already seen that CAGR is projected to be strong through 2023, this looks like a safe play on that theme.
Again, the soon to be arriving flu season provides impetus for a surge in telehealth revenues which should bolster stocks within this particular ETF.
Teladoc allows users to download its app, fill their medical history and get help in minutes.
This is the general promise of telehealth across the industry. Teladoc isn’t unique from that perspective. But, Teladoc has been in the game since it was listed in 2015.
This is an established leader in the telehealth space. In fact, investors who bought in at the IPO have seen their money grow by 556% if they held their equity until now.
The company has been sending mixed signals lately. There is positive, in that the pandemic has provided a boost to revenues per its 3Q earnings report. Year-over-year, revenues more than doubled in Q3 from $137 million to $288 million.
But the company is still losing money — albeit at a lower rate than last year. Teladoc showed a net loss of $79.8 million through the first three quarters of 2019. It just reported a net loss of $91 million through the first three quarters of 2020. Remember, revenues have more than doubled.
This suggests that TDOC stock actually represents increasing efficiency, although still losing money. And even though it has been bumpy, increased operational efficiency is a good sign. The stock also recently fell following its merger with Livongo.
Stock mergers often see this scenario play out due to fears about transition leading to inefficiency. This could well be the case with Teladoc. If this is true, TDOC could rise as the kinks are worked out. It’ll be volatile into the future but it is a leader in this rapidly growing industry. Similar stocks tend to work out their issues, and rise with industry trends.
iRhythm Technologies (IRTC)
iRhythm Technologies focuses on cardiac monitoring, without the need for an office visit. The company’s home enrollment service allows it to send a cardiac monitor to a patient’s home for self-application. Patients’ monitors then relay data to the company which is particularly valuable in our current situation. But even under normal circumstances, the hassle of traveling to a clinic is a step patients want to eliminate.
Cardiac arrhythmias are one of many conditions which can become exacerbated by the influenza virus. And this should mean more opportunity for IRTC stock to provide its products this flu season.
Analysts are highly positive on IRTC stock, with 8 buy ratings and 2 holds. The company’s recent Q3 earnings reflect some of that optimism. The company maintains a very high margin on its products, recording gross profits for Q3 of $53.7 million on 74.7% gross margin.
That gross margin is similar to that which the company posted in the same quarter of 2019. Meanwhile, the revenue difference is attributable to the pandemic leading to an uptick in volume. This news is important as the company is fast approaching profitability.
IRTC lost $4.7 million in Q3 2020, but that’s far less than the $18.3 million in Q3 2019. If the company continues along its present trajectory, those margins will soon lead to excellent profits.
To me, it looks like this company is quickly closing the gap on operational net losses. It has a very profitable product in a growing sector. Those are broad measures that provide a lot of tailwind for ITRC stock to really run higher.
GoodRx is a 5 year old company that recently went public on September 23. The company is so young that investors don’t have much with which to judge it. GDRX will release its upcoming first earnings report on November 12.
That said we can look back to its Form S-1 registration statement to learn about the company. The company operates at the intersection of healthcare savings and telehealth. Its investor presentation highlights the fact that Americans spend double what other OECD country members spend per capita on healthcare. It also notes the striking fact that 66% of all personal bankruptcies are due to medical costs (Page 6).
Its telehealth digital platform claims to have saved users $20 billion plus throughout its existence. Primarily it is working to lower the prices of prescriptions via increased access to prescription choices.
The market will know more about the company’s financials following its upcoming earnings release. But investors can reference similar information about its past performance. The company’s revenue growth and EBITDA growth have been strong from 2016 through 2019. Its revenue CAGR was 57% during that period, and its EBITDA CAGR was an even higher 75% (Page 28).
That kind of growth in a highly profitable sector like telemedicine bodes well for GoodRx. Combine that with social distancing, flu season and customer savings, and GDRX looks like a winner.
Humana is a highly profitable medical insurance company. And when it comes to telemedicine the company is working on several fronts.
The company waived out-of-pocket expenses for telehealth services through 2020. Ultimately, this will lead to reduced revenues, though it has the effect of increasing goodwill.
But I also believe it has a further positive effect which will help Humana. That is, it stands to increase telehealth volume due to waived fees. While this may cost in terms of lost revenues, it benefits the company in increased data and experience.
Companies benefit greatly from those two things. Humana will learn a lot more about its own services (and its customers) due to increased volume. Of course, more volume leads to more data. So while the short-term ding to revenues isn’t great, the value in voluntarily doing so may prove much more valuable in the longer term. That’s smart strategy if you ask me.
The company also invested $100 million in telehealth start-up, Heal. Heal allows users to schedule in-home visits with doctors, bringing the doctor to the patient. This is a slight twist to the more common screen-to-screen model. And that might be why investors are interested in Humana.
While Humana has less growth potential than some of the other stocks on this list, it makes up for it with more stability. And analysts give it a price target as high as $540, leaving a lot of growth from its current $422 price. If it can leverage the telehealth factors I mentioned, there’s every chance that possibility becomes reality.
Castlight Health (CSLT)
Castlight Health represents a few things which are inherently volatile and fraught with risk.
First, it’s technically a penny stock given its current $1.02 share price. Secondly, it is deeply undervalued. In fact, so undervalued that some consider it a value trap
All this really means is that while the company should be trading much higher, it isn’t. Unfortunately it .also suggests that investors may never change their minds. Thus, no price appreciation, and not a good investment. I’ll concede that all of these may well turn out to be true.
But employers may also soon be looking for companies that serve the market as Castlight Health does. Investors will seek out Castlight if and when that happens. And the stock price will rise from its cheap current levels.
What the company does is allow employers to connect all their health, wellness and benefits vendors in one place. Employers are also participants in the health care system in America which is fraught with high prices. This is something we often forget.
Companies also desperately want to find ways to reduce costs associated therewith. And cost savings can add up quickly with a single health benefit vendor, this can multiply across the myriad vendors an employer must deal with. That’s where Castlight Health comes in.
Consider it for those reasons, but also remember that it may never gain the recognition its fundamentals suggest it should.
American Well (AMWL)
Also known as AmWell, AMWL stock is a young equity, having had its IPO in September. Stock prices rose from $23.07 at the September 17 launch to nearly $39 by October 7. It dropped all the way down to $25.10 by November 2, then rose to $30.41 four days later.
The point is that this is a young, volatile play on telehealth. Yet the company also has clout behind giving it extra attractiveness.
Importantly, AmWell has partnered with Google (NASDAQ:GOOG,GOOGL) to leverage its Cloud architecture. That is of course a reason to consider AmWell in and of itself. And AmWell does have a broad variety of solutions in telehealth which it seems to be able to operate well.
To that end, AmWell was recently ranked the number 1 telehealth provider by BusinessInsider. Direct to consumer companies like AmWell will dominate telehealth as consumers see that there are ways to reduce prices and cut out the middle man.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.