As we expected, Dialogue health saw strong demand for its IPO and ended up pricing at the high end of expectations. According to reports, the IPO was more than 10 times oversubscribed. 

Earlier this week, it announced that it priced its IPO at $12.00 per share and would issue 8,334,000 shares as part of the offering. Given strong demand, we fully expect that the the over-allotment will be exercised in full and upon completion of the offering, Dialogue will have 64,878,039 common shares issued and outstanding.

This values the company $778.54 million. In 2020, the company generated $35.8M in revenue which gives it a P/S ratio of 21.74 and assuming it doubles revenue again in 2021, a forward P/S ratio of 10.87. This looks pretty expensive - especially when one considers that the entire virtual health industry has been under considerable pressure lately. 

Valuations have come down significantly and two competitors we spoke about previously (WELL and MBCN) are trading below these valuations. WELL and MBCN have current P/S ratios of 19.61 and 22.68 and forward P/S ratios of 5.44 and 10.11 respectively. 

While we think it is reasonable to assign a premium to Dialogue given it is highly respected and has the backing of insurance companies like Sun Life Financial and counts many of the big players as clients, it seems fully valued here. The entire industry has undergone a significant reset and it is unclear where the dust will settle. 

We do say this with a caveat - we are assuming forward revenue growth of 100% in fiscal 2021. In Fiscal 2020, it grew revenue by 255% so there is a chance we are underestimating growth prospects. The company hasn't talked much about guidance or outlook, but if it manages to grow by 150% or even 200% next year then all of a sudden, the company looks pretty attractive at $12.00 per share.  At 200%, that gives it a forward P/S ratio of 7.24 and while still more expensive than WELL Health, it is more reasonable.

The company expects to begin trading on March 30 under the symbol "CARE". We think it is one to watch and we expect it to open above the list price given the significant demand for the IPO. There is a strong possibility the company tops $1B in valuation on the day of open. Once again, assuming a 200% increase in sales, Dialogue would still be cheaper than MBCN on a forward basis if it hits $15.00 per share.

Bottom line, lots of assumptions to make with this company. We like it, but we don't like to chase hot IPOs and it'll be interesting to see how Dialogue fares considering current market sentiment towards virtual care stocks.