The equity markets are trading near record highs, and investors are worried about the steep valuations of growth stocks. There are several factors that might impact the stock markets in the near term that include a sluggish macro-economy as well as rising COVID-19 cases in several parts of the world. However, a few companies are well poised to weather the storm, and one such as stock is WELL Health Technologies (TSX:WELL).
This Canada-based health-tech stock has a short interest ratio of 20.5, which is basically the number of shares sold short divided by the average daily trading volume. Generally, a short interest ratio of over 10% is considered extremely high and suggests pessimism. However, there is no reason to be bearish on WELL Health Technologies, and here’s why.
Well Health is part of a rapidly expanding market While the COVID-19 pandemic has decimated companies across several sectors, it has acted as a tailwind for WELL Health Technologies. The demand for telehealth services rose at a stellar pace, allowing WELL Health to grow its top line by 50% year over year to $50.2 million in 2020. Now, the company is on a run rate approaching $300 million while generating more than $50 million in positive cash flow from operations.
WELL Health is focused on improving the primary healthcare industry by leveraging technology and aims to alleviate challenges faced by patients and doctors. The company claims this industry is under-digitized, making it ripe for disruption.
WELL Health owns the single largest chain of primary healthcare clinics in British Columbia and has grown via the acquisition of other such accretive digital assets over the last few years.
Recent developments should keep investors interested In February, WELL Health raised over $300 million via an equity offering led by noted Hong Kong billionaire Mr. Li Ka-shing and followed by several large multi-billion-dollar North American funds. The proceeds of the offering were to be used to acquire CRH (LON:CRH) Medical, a healthcare company with a large practitioner and revenue base in the United States. This equity offering was priced at $9.8 per share, which is around 30% higher than its current stock price.
Last week, WELL Health disclosed that it completed the acquisition of CRH Medical. After including the latter’s credit facility, the acquisition was valued at US$373 million, making it WELL Health’s largest-ever acquisition. Impressively, a couple of days later, WELL announced that JP Morgan who provides a line of credit to CRH, upsized the facility size by US$100 million to US$300 million.
WELL Health expects the acquisition to boost its revenue and EBITDA by a significant margin, given CRH reported US$36.8 million in sales in Q4 of 2020, a year-over-year growth of 21%. CRH generates US$120 million in annual revenue with an EBITDA margin of 40% and a free cash flow margin of 25%.
It will also help WELL gain significant traction south of the border, as CRH Medical currently supports 7,316 ambulatory surgical centres and has established a presence in 15 U.S. states. CRH will also provide WELL the free cash flow it needs to continue its disciplined and strategically accretive M&A program without needing to raise funds and create dilution.
On April 28, WELL Health said it intends to launch a share-repurchase program. If approved by its board of directors, the company may repurchase approximately 4.87 million common shares in the next 12-month period. Generally, a company repurchases its shares if the management believes the stock is undervalued and is trading at a price lower than its intrinsic value.
The Foolish takeaway We can see there are several reasons to be optimistic about the long-term prospects of Well Health Technologies and a high short interest ratio makes little sense. The stock has underperformed the market in 2021 and is down 7.5% year to date, providing investors an opportunity to buy a quality growth stock at a lower valuation.
The post Short-Sellers Beware! WELL Health Stock Is a Rocket That Could Be Ignited Anytime appeared first on The Motley Fool Canada.
Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.
5 Years From Now, You’ll Probably Wish You’d Grabbed These Stocks…Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. You aren’t on the list to receive our newest stock picks — but it’s not too late. 2021
This Article Was First Published on The Motley Fool
