The Canadian Investor - Is WELL Health a worthwhile telemedicine play?

Episode Date: November 16, 2020

In this episode we start by discussing some recent news including the positive vaccine news just announced by Pfizer. We then talk about WELL Health Technologies which is one of the most requested companies by our listeners and how it compares to other players in the telemedicine space. Tickers of stocks discussed: SHOP.TO, PFE, WELL.TO, TDOC Twitter: @cdn_investing Getstockmarket.com --- Send in a voice message: https://anchor.fm/the-canadian-investor/messageSee omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

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And we have a good show for you today. We're going to start off with a little bit of news and then we're going to talk about the most requested Canadian stock potentially in the history of this podcast which is WellHealth. Everyone wants to know about this name especially because Simon and I have talked about telemedicine quite a bit this year. So what's going on Simon? It's going well. Yeah we have I think quite a bit to talk about today from news to WellHealth technology. So excited to discuss that and compare it to Teladoc as well. But I guess we'll get started with some of the news that came out

and more specifically the Pfizer news that they had a vaccine that was 90% affected with their late stage trials. Yeah, over 90%. I think it was over and they're conservatively saying 90%, but that was the headline that really moved the market a couple days ago. Yeah, definitely. So what do you make of that? Do you think it was overdone or what's your take on that? back and forth and at least we called it a little overdone i tend to agree with that um what you really saw was rotation from tech to some beat up stocks air canada was up 25 on the news um that same day the pfizer ceo sold 60 62 of his shares which mean, he had to announce that late in August to comply with the SEC, so it's not insider. But when there's smoke, there's fire.

And the fact that he offloaded 62% of his shares on the release of vaccine news, it seems a little fishy to me. But, I mean, it's all legal. So I'm curious, what did you think about this Pfizer CEO dumping all his shares like that? Yeah, I mean, it was a pre-planned sale. So I mean, I'll give him the benefit of the doubt that it was kind of a good timing, I guess, for the sale with the vaccine news coming out. timing, I guess, for the sale with the vaccine news coming out. At the same time, he probably had a good idea, at the very least, that there would be some good news coming. There might have been some early signs that the trials were going well. And he knew that sometime in November, maybe there'd be some news. So I'll give the benefit of the doubt to the CEO. But I know if

there's something fishy, that's the kind of stuff the sec usually looks after so we'll see yeah and the biggest thing was tech stocks way down um let's not kid ourselves they've had an incredible incredible year um and everything that's been beat up was you know red hot and just laughed at this because since there's a vaccine coming out war on cash, the secular trends are here to stay. And the acceleration of an inevitable trend towards digitization of our world is here to stay. I mean, that's not a hot take. That's just really, really well known. shopify's revenue nearly double on comp revenue basis for for q3 767 mil uh revenue for shopify and they had a u.s dollar earnings per share of a dollar and 13 which is double estimates

yet the stock is down 15 from its october highs because of what we're seeing, this rotation out of tech. And you and I were talking back and forth. It seems like Shopify, I personally like it here more than ever. The stock's expensive. I missed out on its meteoric rise as I couldn't understand the valuation. rise as I couldn't understand the valuation. But this monster quarter, this huge tailwind from e-commerce, and when there's an inverse relationship between real financial results and stock price, that's when the opportunity comes. So the stock's 110 billion in market cap. Let's not confuse ourselves. It's 45 times sales today, even after this pullback.

But if you're going to own Shopify and you want to pay up for it, it seems like now is the time to do it. Yeah, I mean, definitely Shopify has been one of the best stocks this year. To go back, though, to what you were saying in terms of the vaccine news i i found it a bit funny with uh the stock market reacting the way it did on that i can't remember what day it was was it monday that it came out it was this monday right yeah yeah yeah it was it was monday and then we saw you know three straight days of pretty nice gains. They extended from last week's election results was, you know, we had a lot of consecutive sessions of big gains on the S&P. Yeah, and it seemed like, you know, the big pop that we saw after the vaccine news,

to me personally, it was kind of funny just to look at that because it really just confirmed what a lot of the experts, the scientists were saying about the vaccine. I mean, it's just confirming that we're on track for a vaccine that will be widely available mid-2021. There's nothing really new there. It's just confirming what the experts were saying. So I found that very, a bit funny that the markets reacted um that you know that wildly on on the announcement of the news and we've seen it now with the past few days i think it's gone back uh level leveled off a little bit and those stocks that were seen like the travel stocks and hospitality

any of these stocks really impacted have come back down to earth a little bit not that they were really high anyways after the news but yeah that's the way I saw that for I mean for Shopify it's like you said it's a great business you can probably buy it even if it looks overvalued and it'll most likely be a good investment if you're looking at 10, 15, 20 years down the line. It's one that I'm looking at, and I feel like at some point I'll just pull the trigger and buy a share or two of it. Yeah, I mean, at this point, it just seems reasonable. It is Canada's largest company, so it'd be a patriotic move on your part there, Simon. Just close our eyes and click buy, and that's it. For the country.

I saw that Tobias made some changes in their management structure today. News came out that one of their main guys is becoming president. They're hiring some new execs. He's a great leader, and I think he'll continue to be a great leader. So speaking of Canadian companies and interesting stories, Well Health, ticker Well on the TSX, Well Health Technologies is a company that if I had a dollar for every time it's been requested. We talked about it on the show. I could probably retire. And Simon and I finally had some time to do a little bit of a deep dive on it. So we're going to talk about this one. Simon, do you want to just give us some fast facts about this biz? Yeah. So WellHelp Technology, it's still a pretty small company in terms of

market cap. It's just over a billion dollars in market cap. They've really increased their revenue in the past few years. Obviously, they're feeling the tailwinds of the COVID-19 pandemic. So their revenues have year over year, they've more, I think they're up 50%, if not more compared to last year for the first three months. So that's always interesting to see. However, if you start comparing them with Teladoc, for example, first of all, it's not even on the same playing field. Teladoc is a much bigger company in terms of total revenues, but also one of the first big discrepancies between the two and one of the first things I looked at, and we were talking about that is the gross

margin. So you're looking at well-held technology with a gross margin in the low to mid 30 percent. When you have Teladoc with gross margins around 65 percent, so mid 60s in terms of margin. So that's an indicator that the businesses are very different. And when you start digging into the actual business themselves and you looked at well-held technology, you'll notice that most of their revenue is actually not from telemedicine. Most of their revenue is actually from clinical services. So they actually own clinics and they get revenue from that. I know, Brayden, you have the breakdown for those. and they get revenue from that. I know Brayden, you have the breakdown for those.

So do you want to give us an idea of like how many clinics they have compared to what their total revenue is? As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones,

all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be

a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnbbnb.ca forward slash host. That is airbnb.ca forward slash host. Yeah. So this company owns 19 clinics in British Columbia. Okay. And that makes up 80% of revenues. So this is concerning to me, right? Because I'm thinking of all, you know,

investing becomes very difficult when you have decision paralysis. There's so many amazing companies out there. And right now, the market is valuing well health like something that it's not and the the upside potential uh can can be great you know it's it's one billion in market cap say they really execute on the digital portfolio telemedicine really takes off like it has been uh they have a lot of competitors let's not kid ourselves but say that does happen in the realm of possibilities is a potential 10 bagger say say the digital portfolio grows at really really high

rates like it is they keep making strategic acquisitions and it becomes a 10 billion in market cap then you know this this pans out as an as an exceptional investment from here. But when companies start to get valued at multiples similar to other industries that they're currently not but looking to become, I get very skeptical. So when someone takes, when they look at EV companies like NIO or even Tesla, and they look at those companies and they value them much differently, they value them like a cloud stock that has 90% gross margins and not a car stock, there's a disconnect in price and it becomes very dangerous if the company

doesn't completely execute on their mission. And this is what I'm worried about with a company trading at 27 times sales that, you know, most of their revenue comes from 19 health clinics in British Columbia. There seems to be a disconnect there. The stock is up 380% this year. And so let's take a bigger picture here, Simon. Stocks move on a less than six month period, almost purely on sentiment. And, you know, you're going to get two quarters in there of financial results, but most of that's already been modeled out by Wall Street and analysts. So you're just comparing that to expectations at that point, in terms of if the stock moves significantly, and or one way or another based on pure financial results. or one way or another based on pure financial results.

But everything else is moved by sentiment in terms of what people think the real potential of this business is. And telemedicine is one of those ones that has definitely caught the hype train. Now, I back this hype train. You love Teladoc, ticker T-Doc. I don't own it. Kicking myself, probably should. Love the business. And you can see Teladoc, for instance, like you mentioned, their gross margins, is truly a telemedicine software-as-a-service play.

And the gross margins on something like this, which primarily operates clinics, tells a much different story. So this 380% gain year-to-date from Well is moved mostly by sentiment. They did report earnings today, and this company is going very fast. I got to give them credit. 75% year over year comp revenues. They accomplished three acquisitions, which is very impressive. Circle Medical, Doctor Care, Easy Allied. And today they finalized the, or maybe Monday, they finalized the acquisition of Insig Corporation, which is telemedicine.

So you can see where the business is going, what they're trying to achieve. And that warrants a very high multiple. But at this current price, it feels like it's being valued as something it's not. Where do you stand on this? Yeah, I mean, it's that's a really good point. And I would tend to agree with that. If you're looking, they actually give a breakdown in their quarterly report that just came out today. And if you look, if you guys want to have a look at page nine, they're breaking down revenue by segment. And that's where you see the total clinical services. So it actually, it's less this year in terms of percentage that it was last year. So this year, it's 80% total clinical services and then 20% digital services, but digital services, there's ERM. So it's electronic medical record management that they call or EMR.

So that's part of it as well. So it's not all telemedicine like Teladoc, for example. Compared to last year, it was 94% clinical services and 6% digital services. So yes, they're trying to move towards those digital services a bit more. You can definitely see that. One of the issues, again, is the gross margins. They're definitely not there. I'm not sure exactly when they'll become profitable, whereas Teladoc is actually cash flow positive. And just looking at their financial statement recently, I think they're probably going in to be around $75 million for 2020 in terms of free cash flow for Teladoc.

2020 in terms of free cash flow for Telda, whereas well-held technology, they're losing money from a net income perspective, but they're also losing money from a cash flow perspective. Having said that, their balance sheet is pretty solid. They have a lot of cash on hand, so it's not an issue. Zero debt. They do have some liabilities, but that is a good part of it. But on the other hand, if you look at the total share outstanding, you can see that they're diluting quite a bit. So their total shares went from 97 million or so last year, the average outstanding shares in Q3 versus 134 million this year. So, yes, they seem to be financing those acquisitions through issuing new shares. It's fine for a growing company. It's not necessarily a red flag. But like Braden said, if you're valuing this company at such a high sales ratio,

the same as a Teladoc, where a Teladoc is definitely the market leader in the US and has a presence worldwide. That's a bit of a head-scratcher, especially when well-held technology, and we were talking about that before we started recording, they're not even the market leaders in Canada. So we were looking at some information, and we found some articles, and it's kind of hard to know right now who the market leader is in canada but from what i gathered it's uh the two biggest players are maple and dialogue technology so my employer has dialogue technology

through canada life which was formerly great west life and brayden i know you uh your employer has maple right yeah i've used i've used maple it's seamless it's great yeah and same for me for dialogue I've used it really good those are in companies that are interested they're still private but I feel if they do come public they'd be some really interesting companies to look in terms of what their gross margins are what they're like their revenues are so we can get a better idea how it compares to the well health technology and obviously the the big player down south which is uh teladoc yeah and we got to think about

their mission right so this is from their website well's mission is to positively impact health company health outcomes by leveraging technology to empower and support patients and doctors. Within British Columbia, Well owns 19 medical clinics. With a bunch of physicians, they go on and on. They also provide software as a service. They're traded on the TSX. And their goal is to become the leader in Canada. Okay, great. That's wonderful. It's a

big enough total addressable market for them to become much bigger than they already are at 1 billion. But I'm looking for, especially in a tech play like software, if I'm paying up for these really high multiples, I want two things. If I'm paying up 30 times sales for a company that's growing really fast, sure, no problem. I can do that. But I need to see two things if I'm going to do that. I need to see really high gross margins because it's a software play. And I also need to see scalability outside of these borders.

And neither of those are ticked. Not neither of them. So that's concerning for me. I hope this company does well. I hope they execute on their telemedicine digital me. I hope this company does well. I hope they execute on their telemedicine digital strategy. I hope they tuck in all these acquisitions. There's probably tons of synergies if they integrate them correctly, like tons. Similar to what Teladoc did with Livongo. These acquisitions are truly strengthening their offerings. So that makes sense to me, and they'll probably do quite well. But it's really hard for me to be to be bullish on this company, both at this price and given their their potential.

Yeah, I would totally agree with that. And just a side note, as you were talking, I kind of saw something that was interesting so loblaws the grocer actually invested 75 million for minority stake in in maple the telemedicine firm and dialogue which is a quebec-based company actually has the backing of la caisse de dépôt de placement quebec for those who are not familiar with that, it's like the Quebec investment arm, a bit like the Canada pension plan when they do invest. So you have these two what look like market leaders in Canada that are backed by pretty deep companies. So I mean, again, I don't fully know what the, uh, the toll market is, um, in

Canada for telemedicine and what percentage is owned by each, but when you have those two players that seem to be backed and seem to be very present, just based on personal experiences too, uh, throughout the country, um, I'm not sure how well, uh, and no pun intended, how well technologies will do in that space. Well done. And I have no idea what you said on the Quebec part there, but I enjoyed every second of it. If you're looking for something in Canada that is part of this digitization of medicine. And it's very exciting sector. There's other players out there that are public, you know, we mentioned that their big competitors seem to be private right now, have some big backing. But on the stratosphere platform, when you go on the company search, and you type in well, you can see all their financial statements, you can see

everything. And there's also an industry comparison tool. And the next biggest in market cap is called CloudMD Software and Services. One that I have not dug into at all. It's 418 million market cap, but I was looking on their growth and it also trades for a crazy multiple, but the growth is actually much higher and the margins represent, you know, a true cloud service and software company in this space. So another one potentially to look at that's ticker doc on the TSX DOC. There's other ideas out there. And then of course, like Teladoc's the leader, right? I mean, you're going to have to go Biden-USD, which is fine. Go do that. But pay up for the companies that are truly quality and are industry leading. I'm a bit concerned with the price at well when most of the business is still in-person clinics in British Columbia.

When most of the business is still in-person clinics in British Columbia. With all the amazing companies out there in the world, that does not scream my capital at this point. So that's just kind of where I sit. Yeah, yeah. And I would agree with that. And obviously, I'm not saying that Teladoc is any cheap. It's a rich valuation. It's not cheap by any stretch of the imagination right now.

But at least at Teladoc, there is a path to profitability. The gross margins are there. You can see that they can continue growing probably for years, if not decades. Well Health, I really don't know to what extent and I don't know how well they'll expand those gross margins. So that comes down to it for me. But we hadn't talked about this before starting. So I'll put you on the spot, Braden. So what would you say? We had a question in the forum recently or on in the community on Stratosphere 2, which I wanted to ask you on the podcast. And how people should approach companies that are really high flyers, high risk. Some of them may not have any revenue. They may be still in the development phase. If people still believe in that company, how would you say that they should approach, especially for position sizing?

Yeah. Well, you gave me a nice little hint hint there with your last few words and that is the key right position sizing is going to be going to be critical with something that sounds like what you're hinting at is very super speculative and you know there's nothing wrong with taking taking the odd gamble uh it's master's weekend here by the way. I'm a big golf fan. You know if you listen to this podcast. It's the Masters week. I'm betting a little bit of money on the Masters. Do that.

Scratch that itch. But when it comes to gambling in the stock market, if something super speculative, unproven, has high potential, that's great. That's fine. You can take a small piece. And the reason for that is if it pans out, that small piece is going to become a huge position in your portfolio,

even if it was a very, very small sliver at the beginning. And if you let that run and don't trim it, it can generate some serious wealth for people who, were early investors in some of these mega cap companies. It was very speculative at one point. That makes sense. And even if their position was so small into these meteoric rises of very successful companies, that small position was enough to be an absolute game changer for your portfolio and probably for your life. So I think that's the key, right? Is don't stretch yourself too thin on a company that's still unproven. And if you are venturing into that, I need you to know that business inside and out. Not someone told me it's going to pan out.

Not have you seen the stock chart, it's going through the roof. not have you seen the stock chart, it's going through the roof. I need two reasons that are not either of those of why it's going to be successful in the future. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's

customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's Airbnb. your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Yeah, exactly. And it was a good question, I thought, because look, we like

certain companies and people listening might like other companies. I like some companies that are very, you know, there's their high growth, but they're richly valued. And there could be a pretty significant correction if something goes wrong, and they're not growing as fast as they intended, there could be a big correction the price as well. And you can have people and I'm thinking of like Virgin Galactic here that has like pretty much no revenue, but a lot of people see that market being huge and life-changing and so on and maybe like everything pans out and it becomes a billion dollar like I mean a trillion dollar company in 10 15 20 years but make sure you keep that position sizing small like Braden said as a rule, I wouldn't go more than 0.5% for the super speculative stuff.

Worst case scenario, you lose that money. Your portfolio is not too impacted. Best case, if you get a 10, 15, 20, 100 bagger, then you have a big winner on your hands anyways. So that's kind of that's the philosophy I have. That way it gives you that upside, but it doesn't. Your downside is still limited if it doesn't pan out as you had thought. Yeah, and you can take a page out of an revenue streams from search and youtube and cloud and all of their key cash flow generators and then they just have like other bets listed as a segment

and they're always trying to innovate and do new things you could potentially take a page out of their book and do that with a small piece of your portfolio. If you really think you have some insight, and I'm talking like real insight, not someone gave you a hot stock tip, on that business and them being much bigger than they currently are in the future with a management team that can actually execute. that can actually execute because it wasn't so very long ago, a couple of weeks, who knows in this time vortex of COVID-19, but Nikola was the hottest thing on retail investors' minds, the EV company, and their founder and CEO basically left town. And it's a complete disaster, that one. And that's an example of a company that was very, very speculative. They reported $30,000 in revenue one quarter for their first dollar made. And guess what it was?

It was a solar system put on the founder's roof listed as revenue. Like, that's really suspicious. And anyone could see through that. But people get caught up in the hype train. And a lot of people made lots of money if they got out. And a lot of people lost a lot of money. So be aware of that with your position sizing. And just like anything with any stock market investing, the famous Charlie Munger, Warren

Buffett, they repeat on almost every investor call and annual report is, if you can't see your stocks going down 50% without panicking and selling them, if they're truly great companies, then the stock market just isn't for you because drawdowns do happen. Wasn't that long ago, much happened. You know, this happens. So it comes down to yourself in terms of position sizing and being able to react rationally. And that'll be the real game changer for you. Yeah, yeah.

And just one last thing to add, especially what's going on in the US now with the transition from the Trump to the Biden administration. I mean, I think the only thing we can expect is the unexpected. And I think that applies definitely to the stock market. So I think we'll see a lot of volatility in the next few months, whether it goes up or down.

So just be aware of that and make sure you just remind yourself of owning good companies. So when you do see that 10%, 15%, 20% dip in your stock, like I saw with Etsy, I think earlier this week, you don't panic. You have a long-term focus and you like the company if anything you add more shares if if you really find the price attractive yeah exactly and so there's a real world example for you for Etsy and I finally bought Tencent as I've been talking about a lot both on my Twitter and on this podcast is finally joined Simon on the Tencent train and I bought a position the next day it went down seven percent uh because the rotation out of tech you know all tech was down seven percent was just

middle of the pack impeccable timing there right yeah and. And then I'm like, oh, wow. You buy a stock, it goes down 7% the next day. But it's a lot easier to sleep at night when, one, you know the company inside and out. And two, you know that it's a fantastic business and that short-term volatility is not anything to sweat about. Today, they released earnings this morning, November 12th. And comp sales were up 29%. Earnings were up 80%. Gaming was up 45%.

Music subs were up 49%. And that is true execution of growth and the business quality. And you just, you just look at all the volatility in between that and it's just complete noise. So when you focus on the core business and track things that matter, this becomes a whole lot easier. All right, guys, I think that does it. It's a good episode. It was a good chat, Simon. Yeah, it was pretty good. It was interesting. As always, GetStockMarket.com brings you to Stratosphere, the software platform where I got almost all of the data

talked about on this podcast today. And you can go on there free, 14-day trial. No credit card required. Give it a shot. We will see you guys next week. As always, you can, uh, you can shoot. Oh, we haven't talked about this, Simon. You can shoot voice clips, voice questions on the anchor link that we send out on their Twitter. So that's a, that's a call to follow us on Twitter, CDN underscore investing. And there's a link that Simon throws

out there for the anchor link. And you can go on there and actually record a voice message. And we could probably start working those into the episodes if you have questions. We should start working those in. That would be cool. Yeah, exactly. All right, guys, we'll see you guys. I was going to say, make sure that you have your best podcast voice so we can just cut the clip in and answer the question yeah you better have an 800 microphone to record for the podcast no i'm just

kidding anything will work we appreciate it guys we'll see you next week the canadian investor is not to be taken as investment advice braden or simone may own securities mentioned on this podcast always make sure to do your own research and due diligence before making investment decisions