The Picks! December 2020 Edition
4 Stocks Working to Improve Healthcare, and the Scorecard for the November 2020 Picks
4 Stocks Working to Improve Healthcare
The Covid-19 pandemic brought to light the amazing people and companies involved in healthcare. Their tireless work has helped us get through this challenging and uncertain time, and I am thankful to every individual that played a role.
But this pandemic also called attention to the continued challenges of the healthcare system. Access to adequate healthcare, prescription price discrepancies, and confusion trying to navigate the system are just a few that affect so many Americans, and it will only become more challenging as the population ages and grows in size.
Recently, health-tech companies have stepped in to fill the gaps and address those challenges head on, leading to preventative care, data driven platforms, telehealth, connected health devices, and total patient lifecycle care. I selected a basket of stocks with these solutions in mind, and their long term potential for growth.
The healthcare system is the largest employer in the US, encompassing more than 18% of the total gross domestic product. It is also one of the fastest growing industries in the world, with the potential to reach over $10T in spending by 2022. And these 4 companies are looking to take advantage of that growth:
Teladoc Health, Inc. (Ticker: TDOC)
GoodRx Holdings, Inc. (Ticker: GDRX)
Progyny, Inc. (Ticker: PGNY)
CareDx, Inc. (Ticker: CDNA)
**The scorecard for the November 15, 2020 picks will be at the end. There’s a long way to go, but check out the results!
An Entire Virtual Care Strategy
Teladoc Health, Inc. (Ticker: TDOC)
Quick Stats:
Market Cap: $28.9B
Price to Sales Multiple: 17.6
Revenue Growth Most Recent Quarter: 109% YOY
Gross Profit Margin: 63.9%
Profile:
TDOC is working to be the global leader in virtual care across primary, ambulatory, acute, complex, and chronic care, so someone can pick up their phone from anywhere in the world to receive medical attention.
Management:
CEO Jason Gorevic has an approval rating of 93% on Glassdoor, and TDOC has an overall company rating of 4.0. TDOC’s employees commented positively in the form of a good work environment and good benefits, but also stated that leadership lacks diversity and the company has a challenging work/life balance.
Financial Health:
TDOC’s cash on hand was $1.19B, which covered current liabilities 5.9x and the convertible senior notes 1.2x. Although the convertible senior notes more than doubled from the previous year to $953M. The tangible net worth of the business was only $154M, leading to a debt-to-TNW of 7.9, high for a company. TDOC recently acquired InTouch Health and Livongo Health. TDOC stated in their investor presentation that the synergies created over time from these acquisitions will lead to strong revenue growth and cost cutting over the next 2-5 years.
Revenue Growth:
Third quarter revenue grew 109% to $288.8M and visits increased 206% to 2.8M. Access fees accounted for 78% of the revenue while visit fees were 18%. Another key metric to watch will be the platform enabled care sessions, which was 986K in the third quarter. TDOC licenses the platform to health facilities and they use it to facilitate a virtual care visit. Net loss was <$35.9M>, an increased loss of 76%. This was largely a result of the transaction costs for the acquisitions which totaled $25.2M, bringing the net income loss for the quarter to <$10.7M>. From the acquisitions, TDOC stated they should see $500M in run-rate revenue synergies by 2025 and $60M run-rate cost savings by 2022.
InTouch Health - leader in enterprise telehealth solutions for hospitals and health systems.
Livongo Health - leader in using technology to transform the experience of living with a chronic condition like diabetes, hypertension, weight management, and behavioral health.
TDOC is now the single solution for the entire virtual care strategy with the potential to virtualize (in their estimates) $250B of the current US healthcare spend. They will also see growth by offering better access to healthcare to remote and underdeveloped regions.
Saving Consumers $$$ on Prescriptions
GoodRx Holdings, Inc. (Ticker: GDRX)
Quick Stats:
Market Cap: $16.6B
Price to Sales Multiple: 32.5
Revenue Growth for the Current Quarter: 38.6% YOY
Gross Profit Margin: 95%
Profile:
GDRX helps Americans get the healthcare they need at a price they can afford through better medication adherence and faster treatment, thus leading to better patient outcomes.
Management:
The Co-CEO team of Trevor Bezdek and Doug Hirsch had an approval rating of 98% on Glassdoor. Listening to them in interviews, especially after Amazon announced their entrance into the prescription industry, helped support these strong ratings. Employees identified a positive work/life balance, office benefits, and culture. They also mentioned growing pains including lost efficiencies while they try to figure things out. In terms of the consumers, the net promoter score for GDRX was a very high 90.
Financial Health:
With $1.08B in cash on hand, GDRX can cover current liabilities 17.9x and the net debt 1.5x. The net debt only increased $25M from 12/31/19 to $688M as of 9/30/20. The tangible net worth was $456M, creating a reasonable debt-to-TNW of 1.7x. GDRX experienced an operating loss of $61M, a drastic increase from the year prior and largely due to stock based compensation of $98M. Net cash provided by operations was $116M for the nine months of 2020, a 75% increase from the same nine months in 2019. One thing to watch is the customer concentration, where the top four customers accounted for 51% of GDRX’s revenue.
Revenue Growth:
GDRX has acquired key businesses over the last 2 years to build out their existing platform. They acquired Scriptcycle in August to build out their prescription offering and acquired HeyDoctor in 2019 so patients can use the telehealth service to obtain prescriptions for various medical afflictions. In 2019, consumers used the GDRX codes for $2.5B in prescriptions. Covid-19 decreased the website/app consumer traffic in the second quarter, but GDRX has since seen an increase in traffic during the third quarter. Regardless of the challenges of Covid-19 on the business, monthly active consumers still increased 29% year-over-year to 4.9M. The GDRX app was also one of the top downloaded medical apps in 2020.
GDRX’s full offering now includes prescriptions and mail order services, subscriptions to low prescription prices, manufacturer solutions to advertise, integrate, and communicate affordability, and telehealth services.
Fertility and Family-Building Benefits Leader
Progyny, Inc. (Ticker: PGNY)
Quick Stats:
Market Cap: $3.5B
Price to Sales Multiple: 11.2
Revenue Growth for the Current Quarter: 61.8% YOY
Gross Profit Margin: 21%
Profile:
PGNY makes the dream of parenthood come true through a healthy, timely, and supported fertility journey. They work to issue the most effective treatment from the best physicians to achieve optimal outcomes for families.
Management:
On Glassdoor, CEO David Schlanger has a 93% approval rating and the company has a solid 3.8 rating overall. Employees identified positives of interesting projects, great people, and a growing culture, while PGNY needed to work on improving their hiring practices.
Financial Health:
With $104.8M in cash and marketable securities, PGNY barely covers their current liabilities 1.4x. To help support this small cash position, PGNY has no sizable debt, and their cash from operations in the first nine months of the year was $29.6M. Their tangible net worth of $113.8M helped them create a strong debt-to-TNW of 0.65. PGNY had 61.8% revenue growth year-over-year in the third quarter and turned a profit of $5.35M, even in spite of their tight 21% gross margins.
Revenue Growth:
PGNY offers an integrated solution that manages fertility treatment services, a network of quality fertility specialists, and digital tools for member support. They also added a pharmacy benefits solution focused on fertility treatments. PGNY experienced a slow down during Covid-19 as healthcare plans pulled back from the extra benefits, but picked up in the third quarter and haven’t looked back. As the need for fertility services increases, companies will be hard pressed to find a better solution than what PGNY offers, and sizable companies like Microsoft, PayPal, Google, and Uber have already taken them up on that offer.
Full Service Solution for Transplants
CareDx, Inc. (Ticker: CDNA)
Quick Stats:
Market Cap: $3.4B
Price to Sales Multiple: 18.2
Revenue Growth for the Current Quarter: 58% YOY
Gross Profit Margin: 68%
Profile:
CDNA is the leading partner for the transplant ecosystem. They improve the long term outcomes for patients with innovative solutions throughout the entire transplant patient journey and by partnering with transplant centers across the US.
Management:
Currently on Glassdoor, CEO Peter Maag’s approval rating is 67%, dropping from the high 70s a couple months ago. The company also has an overall rating for 3.0, below the average I like to see for my investable companies. This is something to watch closely. For the positives, employees identified great benefits, strong salaries, and that people care at the company. Although the negatives included mid-level managers being under lots of pressure, unrealistic goals for employees and teams, and a quickly shifting focus that led to inefficiencies. The company is experiencing a hiring surge, so this could be growing pains.
Financial Health:
Current cash on hand for CDNA is $213M, which covers current liabilities 3.4x. CDNA also has no sizable long term debt. Their tangible net worth is $200.4M, which gives them a strong debt-to-TNW of 0.42. The business also has strong gross margins of 68%. With revenue growth year-over-year of 58%, CDNA had a smaller loss from operations of $2.9M, decreasing 56% from the previous year’s third quarter. Cash from operations increased to $26.2M for the nine months of 2020, a $27.8M swing to the positive from 2019.
Revenue Growth:
CDNA works in both the pre-transplant and post-transplant monitoring of the patient’s transplant journey, earning revenue from both areas. The lion’s share of their revenue, 85% is from testing services. As CDNA partners with more transplant centers and expands their testing, product, and digital offerings, then they should continue their current growth trajectory.
The Scorecard! November 2020 Edition
5 Stocks to Bridge the Pandemic
$ULTA-> 11/16/20 Open Price of $270.00, Current Price $267.55, Loss 0.9%
$SQ-> 11/16/20 Open Price of $175.83, Current Price $219.99, Gain 25.1%
$TTWO-> 11/16/20 Open Price of $161.35, Current Price $194.70, Gain 20.6%
$DKNG-> 11/16/20 Open Price of $42.40, Current Price $50.50, Gain 19.1%
$FVRR-> 11/16/20 Open Price of $166.33, Current Price $205.85, Gain 23.7%
Average Return of the Basket = 17.5%
Return of the S&P 500 = 2.4% (11/16/20 Open Price of $360.98)
Beating the Market = 15.1%
**Numbers were as of the close of business on December 15, 2020. This basket will be tracked for 3 years.
Thank You!
If you’ve made it this far, then you are an amazing human! Let me know what you think by leaving a comment. Or drop me a question. Share it with others who might appreciate this information. Looking forward to sending out the next issue!
**I am not a financial advisor, so please don't buy/sell anything based solely on what you read here and do your own due diligence.