Having found itself at the forefront in the war to defeat the COVID-19 pandemic, the healthcare industry has received substantial support from governments worldwide. In the U.S., the CARES Act, which was passed in March 2020, allocated $150 billion to the healthcare industry to fund its additional overhead costs in tackling the crisis, and $1.32 billion in supplemental funding. This has helped not-for-profit healthcare organizations, particularly hospitals, to mitigate losses from the cancellation of non-coronavirus care. For-profit healthcare companies adjusted their business models to generate substantial revenues from the rising pandemic hospital admittances.
Investors’ bullishness about the industry is evident in Vanguard Health Care ETF’s (VHT) 52.1% gain over the past year.
The industry is expected to make a speedy recovery as elective procedures are rescheduled this year following the flattening of the COVID-19 infection curve. However, this expectation has contributed to the sector’s overvaluation. Also, divided views regarding the healthcare industry as President Biden moves to bolster the Affordable Cares Act may hinder the industry’s recovery. Consequently, S&P Global Ratings has kept its 2021 ratings outlook for the healthcare industry negative.
Given this backdrop, we think it would be wise for investors to avoid overvalued healthcare companies Teladoc Health, Inc. (TDOC), Oak Street Health, Inc. (OSH), and Invitae Corporation (NVTA).
Teladoc Health, Inc. (TDOC)
Based in New York, TDOC is a global leader in whole-person business-to-business (B2B) virtual care services to its clients. The company uses proprietary health signals and personalized interactions to drive better health outcomes across the full continuum of care at every stage in a person’s health journey.
TDOC’s revenues have increased 145% year-over-year to $383.32 million in the fourth quarter ended December 31, 2020. However, its top-line growth has not translated into overall profitability. Its loss from operations has increased 3014.6% from its year-ago value to $458.51 million, while its net loss per share has risen 1080.8% to $3.07 over the same period. As of December 31, TDOC had an accumulated deficit of $992.70 million.
Analysts expect TDOC’s loss per share to increase 60% year-over-year to $0.64 in the current quarter (ending March 31, 2021). The company missed the Street’s EPS estimates in each of the trailing four quarters. The stock has declined 31.8% over the past month.
In terms of forward price/sales, the stock is currently trading at 15.26x, 86.5% higher than the industry average of 8.18x.
TDOC’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TDOC has an F grade Value and Sentiment and a D for Stability and Quality. It is currently ranked #75 in the 78-stock C-rated Medical - Services industry.
In total, we rate TDOC on eight different levels. Beyond what we stated above, we have also given TDOC grades for Momentum and Growth. Get all TDOC’s ratings here.
Oak Street Health, Inc. (OSH)
OSH is a network of value-based, primary care centers for Medicare beneficiaries. Through its centers and management services organization, the company operates an innovative healthcare model to enhance patient experience; it also assumes the full financial risk of its patients.
In late February, OSH entered the Georgia market to extend its national footprint. Last December, OSH expanded into the Louisiana and South Carolina markets. The company has also been expanding in new cities in states where it already has a presence. These moves demonstrate OSH’s commitment to expanding its innovative model of high-quality primary care to as many people across the country as possible.
However, despite these developments, the company’s fourth quarter results are far from impressive. OSH’s loss from operations has increased 106.2% year-over-year to $90.73 million in the fourth quarter, ended December 31 Its net loss has risen 95.7% from the year-ago value to $87.11 million. OSH reported net loss per share has risen $0.40 over the same period.
Analysts expect OSH’s loss per share to increase 107.3% year-over-year to $1.14 in the fiscal 2021 (ending December 31). The stock has retreated 9.3% year-to-date.
In terms of forward price/book ratio, the stock is currently trading at 48.64x, significantly higher than the industry average 4.72x.
OSH’s poor prospects are apparent in its POWR Ratings also. The stock has an overall D rating, which equates to Sell in our proprietary rating system. OSH has a D grade of D for Quality, Growth, and Sentiment and an F for Value. In the 10-stock Medical - Hospitals industry, it is ranked #9.
Click here to see the additional POWR Ratings for OSH (Momentum and Stability).
Invitae Corporation (NVTA)
NVTA, a leading medical genetics company. It integrates genetic information into mainstream medicine to improve healthcare decision-making for clinicians and their patients. The company offers genetic tests in various clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, oncology, metabolic conditions, and rare diseases. It serves patients, healthcare providers, biopharma companies, primarily.
NVTA’s total revenues have increased 51.5% year-over-year to $100.43 million in the fourth quarter, ended December 31. Yet the company is not profitable. Its loss from operations has increased 319.4% from the year-ago value to $331.48 million, while its net loss per share has risen 69.6% to $1.34 over the same period.
Analysts expect NVTA to report a loss per share of $0.59 in the current quarter (ending March 31, 2021). The company failed to meet the Street’s EPS estimates in two of the trailing four quarters. The stock has declined 15.2% over the past month.
In terms of its forward price/sales ratio, the stock is currently trading at 17.78x, 117.4% higher than the industry average 8.18x.
NVTA has an overall F rating, which translates to Strong Sell in our proprietary rating system. NVTA has an F grade for Quality, Value, and Sentiment. It is currently ranked #58 of 58 stocks in the D-rated Medical - Diagnostics/Research industry.
Click here to see the additional POWR Ratings for NVTA (Momentum, Growth and Stability).
The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
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TDOC shares were trading at $190.95 per share on Wednesday afternoon, down $7.81 (-3.93%). Year-to-date, TDOC has declined -4.51%, versus a 6.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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