Investors might have forgotten what the color green looks like after all the non-stop selling in the stock market lately. It's been a very bumpy road for the past few months, and the selling hasn't shown any signs of slowing down. But the market can be short-sighted, which can mean big-time opportunities for long-term investors.
Healthcare technology stocks have gone through a particularly rough stretch, with some popular names down more than 50% from their highs. The strong fundamentals and growth opportunities ahead make these three stocks potential winners over the long term even if they look like losers today.
1. Teladoc Health
Over the past couple of years, investors have gone on a wild ride with telehealth company Teladoc Health (NYSE: TDOC). The leading provider of telehealth services saw a massive jump in business during the 2020 lockdowns, pushing revenue growth to 98% year over year in 2020 to $1.09 billion. Management expects $2.02 billion in 2021, which would spell nearly 100% growth. Some of its recent growth came from the 2020 acquisition of Livongo, a digital technology company specializing in the management and treatment of chronic illnesses, for $18.5 billion.
Now that Teladoc has absorbed Livongo's revenues and COVID lockdowns are less strict, management is forecasting a more modest trajectory for revenue growth moving forward -- an average of 25% to 30% per year through 2024. This slowdown combined with a broader market sell-off against growth stocks has punished the stock.
But as you can see in the chart above, Teladoc isn't losing the revenue it received during 2020 to 2021. Is its growth slowing? Yes, but its forward-looking growth forecast is on top of the revenue growth achieved during the lockdowns. On a price-to-sales (P/S) basis, the stock is now cheaper than before COVID, when the company has an arguably stronger business. Its Livongo acquisition was crucial for Teladoc's launch of Primary360 at the end of 2021: This new primary care service gives patients integrated access to Teladoc's digital health offerings. Teladoc's valuation is now a fraction of what it once was, so investors could see the stock's price mirror its growth moving forward.
Cancer is a terrible disease, and treating it is a significant business within the healthcare industry. Treatments like chemotherapy have been in use for decades. Now, NovoCure Limited (NASDAQ: NVCR) has pioneered Tumor Treating Fields (TTF), a novel method of treatment using low-intensity electrical fields. These are administered to patients through NovoCure's Optune device.
Studies show that these electrical fields slow the growth of cancer cells by disrupting how quickly they divide and multiply. Unlike chemotherapy, they specifically target cancer cells without damaging the healthy surrounding tissue. NovoCure's device is currently FDA-approved to treat new and recurrent glioblastoma as well as mesothelioma, two types of malignant tumors.
Stocks that rely on FDA approval to bring products to market can go a while without significant catalysts. NovoCure's been treating the same niche cancer types for some time, and this has caused revenue growth to slow. The stock has drifted to its lowest P/S ratio in three years during the current sell-off.
NovoCure is waiting for its device to be approved for treating other kinds of cancers, like non-small cell lung cancer (NSCLC), ovarian cancer, and pancreatic cancer. Lung cancer is one of the most common types so approval for NSCLC would dramatically increase NovoCure's growth opportunities. Investors should watch out for critical updates on new approvals this year.
3. Hims & Hers Health
Teladoc isn't the only telehealth company trying to tap into growing demand for virtual healthcare. Hims & Hers Health (NYSE: HIMS), another digital healthcare company in the sector, is building a strong consumer brand for its products. Hims & Hers markets to young adults and targets ailments like hair loss, erectile dysfunction, and acne. The company also offers treatments for mental health issues. Patients can speak with healthcare professionals through Hims & Hers and then subscribe for medicines and supplements delivered to the patient's door.
Its marketing puts a light-hearted spin on its business, and it seems like it's resonating with consumers. The company's telehealth appointments grew from 431 thousand in 2018 to 4.6 million as of the third quarter in 2021 -- a more than tenfold increase. Its memberships grew 95% year over year in Q3 2021 to 551 thousand, driving 79% revenue growth.
Unfortunately for investors, the stock price hasn't reflected this growth, sliding to a fraction of the stock's special-purpose acquisition company (SPAC) merger price of $10 per share. The company recently announced deals to increase its retail presence by getting its supplements and products on the shelves of Walmart, Walgreens, and Vitamin Shoppe, and available on Amazon. Meanwhile, the company just launched its mobile app, which should make it more convenient for people to access its platform.
The market doesn't seem to be a believer yet in the company's success. Still, if Hims & Hers keeps executing and putting up strong revenue growth, investors might have to take notice eventually. For now, the stock seems like a tremendous bargain with a significant upside given the stock's sub-billion-dollar market cap and guided 2021 revenue of $265 million.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope owns Hims & Hers Health, Inc. The Motley Fool owns and recommends Amazon, Novocure, and Teladoc Health. The Motley Fool has a disclosure policy.
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