Missed Out On Rally Of These 5 Healthcare & Software Stocks? There May Still Be Time

by Trefis Team
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Have you missed out on the rally of these 5 stocks in the past three years? Novocure (NASDAQ:NVCR), Teladoc (NYSE:TDOC), Splunk (NASDAQ:SPLK), RingCentral (NYSE:RNG) and LivePerson (NASDAQ:LPSN)?  They have grown more than 100% since the beginning of 2017 despite posting operating losses consistently in the past three years! This counter-intuitive stock performance has two implications. First, many investors might have stayed away and missed this rally on account of the financial performance of these companies. Should they think of buying these stock now? Second, there is a chance that these stocks may be at a tipping point unless the financials start justifying the value that has been gained. If that’s the case, is it time for the existing investors to sell? Answering these questions for this unconventional, and possibly less identified, set of stocks could make for an interesting investment decision. So why not look at our dashboard Could These 5 Stocks Be Risky Or Hidden Gems – LPSN, NVCR, RNG, SPLK, TDOC and make an investment choice? We look at revenue, EPS, and net income trend in context of stock price to understand whether risk weighs more or is there a larger potential benefit.

Novocure

Novocure – A cancer treatment company that owns tumor treating fields technology. Stock price has grown consistently, except 2020, and correlates with revenue growth. There was sharp jump in 2019 due to FDA approval of its Optune device for a particular cancer treatment. There is also clear improvement in net income and EPS, and the company could turn profitable this year. With trends in financials aligning with stock price growth and potential to expand to more cancer types, Novocure could be a good investment even though the stock has grown 10 times since 2016.

Teladoc – A virtual healthcare and tele-medicine company. We observe consistent stock price growth correlating with consistent revenue growth. There was a sharp jump in the stock this year as Covid-19 has made virtual healthcare much more relevant and imminent. Slight improvement in EPS in recent years suggests that profitability may not be far away, especially considering the expected boost from Covid-19. The Stock has already jumped 3x this year so there may not be a lot of room to grow immediately. However, there may be reward for those who want to stick long-term as Covid-19 could bring about long-lasting structural shifts in how we approach healthcare.

LivePerson – The company develops conversational commerce and AI software. We observe consistent stock price growth, with the sharpest jump seen in 2019. Increase in stock price correlates with revenue growth from 2017-2019. There seems to be no correlation with EPS and net income and the company has exhibited losses consistently with steep rise in 2019 due to aggressive product and marketing investments. Interesting to note that the stock has already grown 5 times since 2016 which means that the expected pay off from recent investments could already be priced in. Thus, bottom line improvement could be a key factor to look out for from an investment point of view.

RingCentral – Offers cloud-based collaboration and communication solutions. We observe consistent stock price growth that correlates with consistent revenue growth. In fact, stock has nearly doubled every year which can be attributed to accelerating revenues. There appears to be an inverse relationship with net income and EPS in the last few years, suggesting investors valuing RingCentral’s market expansion. While losses are a concern, cloud-based solutions can get a boost in adoption in a post-Covid world which can help RingCentral gain operating leverage and chart a path to profitability.

Splunk – Provides data analytics software for enterprises. Like others, we observe consistent stock price growth that correlates with consistent revenue growth. However, there is no correlation with EPS and net income. The company has reported losses consistently with a  steep rise in the past couple of years. With many SAAS companies bleeding money and no signs of improvement in Splunk’s EPS despite the revenue more than tripling since 2016, investors may start placing more importance on profits.

Looking for more investment opportunities? Check out this set of 5 stocks – Upside In The Leveraged 5: AAL, CTL, COTY, OXY, HOG? – that could create upside for the brave.  

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