The COVID-19 pandemic is digitizing healthcare. Whether it's the ability to save travel time, the comfort of talking to a physician from the comfort of one's own home, or the convenience of consulting with a practitioner at any time of the day, telemedicine has significant advantages over traditional brick-and-mortar healthcare infrastructure.
There is a telemedicine stock that everyone has been talking about: 1Life Healthcare (ONEM). For investors looking for a growth stock at a reasonable price, this may be the best choice the sector has to offer. Let's take a look at the company's performance.
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Is the company decent?
1Life Healthcare (operating as One Medical) offers membership-based primary care services at more than 70 clinics across the nation or via its 24/7 digital platform. The company accepts most insurance plans and charges a $199 annual membership fee.
There are over 475,000 members and 7,000 employers utilizing the company's health services. In the second quarter of 2020, the company's revenue increased by 18% year over year to $78 million. Meanwhile, 1Life Healthcare achieved a 31% gross margin. In the past 18 months, the number of company partnerships with clinics and hospitals increased by 50% and now accounts for the majority of its revenue mix.
Although the company's loss from operations surpassed $28 million, a vast majority of its expenses were non-cash items, such as share-based compensation and depreciation. In the past six months, the company's operating cash use amounted to less than $11 million.
1Life Healthcare is getting closer and closer to achieving profitability. For the third quarter of 2020, the company expects to grow its member count to between 486,000 and 496,000 and its revenue to between $84 million and $89 million, both sequential increases over the past quarter. For its full 2020 fiscal year, the company's member count will likely surpass 500,000.
At this growth rate, the company will surpass $1 billion in sales within a decade, making the stock a terrific long-term hold. Compared to other telehealth providers, 1Life Healthcare has the advantage of having a hybrid business model, allowing it to refer patients to one of its clinics for treatment if a virtual consultation is not sufficient. Moreover, the company is in a sound financial position, with more than $660 million in cash and investments, to offset $234.6 million of convertible debt liabilities.
Takeaways for investors
1Life Healthcare is expensive, with the stock trading at 10 times price-to-sales and seven times price-to-book value. But other telemedicine companies aren't cheap, either. Teladoc Health (TDOC -0.84%) is trading for 22 times sales, while Livongo Health (LVGO) is trading for 47 times sales. Neither company operates brick-and-mortar clinics where patients can go if their health needs cannot be met by a virtual visit.
For the growth that 1Life Healthcare offers, its shares are relatively undervalued. Additionally, Alphabet-backed telemedicine company Amwell is set to IPO shortly, which may further increase investor appetite for this growing sector. Overall, those looking for a decent growth stock that is not too highly priced for its potential should consider adding 1Life Healthcare to their portfolios. Since January, the company's stock returned more than 27% to investors, beating the S&P 500's 6% return.
