GoHealth, Inc. (GOCO) in Chicago, is a leading medicare-focused digital health company and health insurance marketplace. It leverages innovative technology to match customers with their ideal healthcare policy and carrier. However, the company has an ISS Governance QualityScore of 10, indicating high governance risk.

GOCO made its stock market debut through an initial public offering of 43.50 million shares on July 15, 2020. Since then, the stock has slumped 86% in price to close yesterday’s trading session at $3.05.

The bearish investor sentiment can be attributed to the company’s worse-than-expected earnings and low-profit margins in the past quarters.

Here is what could shape GOCO’s performance in the near term:

Low Profit Margins

GOCO’s 77.89% trailing-12-month gross profit margin is 24.2% lower than the 62.72% industry average. Its 0.16% net income margin is 99.5% lower than the 30.08% industry average, while its 6.79% levered free cash flow margin is 69.5% lower than the 22.24% industry average.

GOCO’s 0.41%, 0.08%, and 2.76%  respective trailing-12-month ROE, ROA, and ROTC compare with the 2.75%, 1.35%, and 6.02% industry averages. Its 16.66% EBITDA margin is 29.2% lower than the 23.54% industry average.

High Debt

GOCO’s trailing-12-month total debt stands at $443.49 million. However, the company’s total cash balance came in at $85.22 million. Thus, its net debt stands at $358.27 million. Its net operating cash outflow was  $215.47 million, raising concerns regarding its ability to meet its principal and interest repayment obligations. GOCO’s book value per share is negative $4.42, indicating that its liabilities exceed its assets.

Lower-than-Industry Valuation

In terms of forward non-GAAP P/E, GOCO is currently trading at 5.55x, which is 53.2% lower than the 11.84x industry average. Its 0.28 forward Price/Sales multiple is 92.2% lower than the 3.58 industry average.

In addition, GOCO’s 1.24 and 0,86 respective forward EV/Sales and Price/Book ratios are significantly lower than 2.95 and 1.32 industry averages. Its 5.01 forward EV/EBITDA multiple  is 59.7% lower than the 12.45 industry average.

Consensus Rating and Price Target Indicate Potential Downside

Of five Wall Street analysts that rated GOCO, three rated it Hold while two rated it Sell. The 12-month median price target of $5.00 indicates a 63.9% potential upside from yesterday’s closing price of $3.05. The price targets range from a low of $3.00 to a high of $8.00.

POWR Ratings Reflect Uncertainty

GOCO has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

GOCO has a C grade for Momentum. The stock is currently trading below its 50-day and 200-day moving averages of $3.84 and $7.55, respectively, indicating a death cross downtrend, justifying the Momentum grade.

Of 13 stocks in the C-rated Insurance – Brokers industry, GOCO is ranked #12.

In addition to the grade I have highlighted above, one can view GOCO ratings for Growth, Value, Sentiment, Stability, and Quality here.

Bottom Line

GOCO is a leading digital healthcare company that is poised to benefit from the accelerating health insurance industry. However, the company’s low profit margins and negative earnings surprise history are concerning. Thus, we think investors should wait until GOCO’s financials improve before investing in the stock.

How Does GoHealth, Inc. (GOCO) Stack Up Against its Peers?

While GOCO has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Marsh & McLennan Cos. (MMC) and AFC Gamma, Inc. (AFCG), which have a B (Buy) rating.

Click here to checkout our Healthcare Sector Report

GOCO shares were trading at $2.92 per share on Thursday afternoon, down $0.13 (-4.26%). Year-to-date, GOCO has declined -22.96%, versus a -1.41% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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