3 Digital Health Stocks Soaring Amid Skepticism Over IPOs

Amid rising investor disillusionment with young, money losing tech companies, three digital health firms that have gone public in recent years are thriving, and have seen their stocks soar as much as 75% in 2019, dramatically outpacing the broader market. Now, these companies are expected to continue to outperform as market watchers expect strong fundamental growth. Indeed, the bright prospects for digital health have sparked a rash of new startups that are likely to lead to new round of IPOs in the next several years as they seek to expand in the burgeoning industry. Business Insider profiled this trend in a recent story.

Digital health providers that are well positioned to keep growing - and thus outrun the market -include cloud computing company Veeva Systems Inc. (VEEV), with a $22.4 billion market value, whose shares have returned about 60% year-to-date (YTD), compared to the S&P 500’s 14.8% increase. Guardian Health Inc. (GH), with a $5.6 billion value, has seen its shares jump 62% YTD, while Teladoc Health Inc. (TDOC) at about $4.4 billion, has returned 26%. 

Startups Rake in $15 Billion

As indicated, optimism in the digital health care space has been so high that more IPOs are likely. Startups attracted $15 billion last year, per Forbes. Driving growth in the market is a need for improved efficiency and patient engagement, which is disrupting the industry. One sign of that disruption came from Amazon.com Inc. (AMZN), a leader in cloud computing, who announced in 2018 that it was teaming up with Berkshire Hathaway Inc. (BRK.A) and JPMorgan Chase & Co. (JPM) to launch a joint healthcare venture intended to lower costs and improve care options. Big data and the potential of electronic record analytics has bolstered the business of these digital healthcare companies, sparking partnerships with major drug companies.

Veeva's Torrid Growth

Veeva, which makes cloud-based software for biotech and traditional drug companies, has met or exceeded its own earnings and sales guidance over the past five years, per the Wall Street Journal. Over the recent five fiscal years, revenue growth has average 33%, and is slated to surpass $1 billion in the fiscal year ending January. While the company trades at a pricey valuation, per the Journal, bulls tout its strong GAAP profits, “revenue growth efficiency,” and healthy operating margins. 

Teladoc's Margins

Another company set to gain on the digitization of healthcare is Teladoc Health, which facilities remote medical care through its phone, web and app services. Some analysts forecast the stock could rise by 100%, per Barron’s. “It’s a stable business model, they have very good competitive positioning, and they have the ability to use a lot of internal growth levers to grow the top line and expand the margins on profit,” said Baird analyst Matthew Gillmor. “I believe they can get to $500 million in Ebitda by 2025 and over that time the stock could double.”

What’s Next

To be sure, investors in these stocks have seen them pull back with the market in recent weeks. But the burgeoning digital health market is likely to keep their revenues expanding faster than the economy and the S&P 500, bolstering their shares longterm.