Virtual Care Stock – Dialogue Health Technologies (TSE:CARE) – Hits 52-Week Low

WRITTEN BY Mathieu Litalien | UPDATED ON: July 28, 2021

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Bargain hunters like to scour the list of Canadian stocks hitting 52-week lows. While there are mixed results with such a strategy, in some cases there are bargains to be had.

The problem with that strategy today is that pickings are slim. As the TSX Index hits 52-week highs, there are few stocks trading at or near 52-week lows. In fact, there are only three stocks with market caps north of $500M that currently fit the bill.

Interesting to note, all three are recent IPOs. The stock are as follows:

  • Brookfield Asset Management Reiunsurance Partner (TSE:BAMR)
  • Dialogue Health Technologies (TSE:CARE)
  • Triple Flag Precious Metals (TSE:TPM)

We won’t spend time talking about BAMR as it is the newest listing and was only spun out of Brookfield Asset Management (TSE:BAM.A) a couple of weeks ago. Likewise, we’ll skip over Triple Flag as it only listed in late May.

That leaves Dialogue Health which listed in late March. Is the company worthy of investors’ attention, or does it fall under the “catch a falling knife” category? Let’s take a look.

Dialogue Health Technologies (TSE:CARE) a leading virtual care stock

Dialogue Health hit the markets with plenty of momentum. The company priced its IPO at the high end of expectations after it announced the offering was more than 10 times oversubscribed.

The company has a unique business model. It focuses on business-to-business (B2B) and is the only integrated B2B model in Canada and is the only platform with three live programs: primary care, mental health, and EAP. This makes it unique among most TSX-listed virtual care stocks which are either solely consumer focused, or have a mixed consumer/business model.

Once the company listed, IPO momentum carried forward in a big way. The IPO was priced at $12.00, opened at $14.50 per share, and quickly hit a high of $20.35 per share in early April. Unfortunately, the stock has been mired in a steady downtrend ever since. The company is nearly trading at a 50% discount from that high and as of writing trading below the IPO price of $12.00 per share.

Is Dialogue Health a falling knife? Definitely not.

This is a leading virtual care stock and is backed by Sun Life Financial (TSE:SLF). It also counts 4 of the top 5 insurers in Canada as clients. The problem was that Dialogue listed at a time when the entire industry was taking a breather. Once one of the hottest industries on the market, virtual care has cooled and most in the industry are trading well below their previous highs.

In terms of valuation, Dialogue Health is trading at ~15 times sales, and ~7 times Fiscal 2022 revenue estimates. While this is much more respectable than what it was valued at when it first listed (P/S of 24, and forward P/S of 11), it still isn’t cheap.

Finding a direct competitor is difficult, as the company’s unique business model means it has multiple competitors across different verticals. Here is the breakdown according to the company:

  • Primary Care: Maple, TELUS Health, WELL Health Technologies
  • Mental Health: LifeWorks, MindBeacon
  • EAP: LifeWorks, Homewood
  • OHS: Which is in the German market and according to the company is littered with smaller competitors as it is a fragmented market.

Of those listed above, only three are independently publicly listed companies: LifeWorks (TSE:LWRK), MindBeacon (TSE:MBCN) and WELL Health Technologies (TSE:WELL).

LifeWorks (formerly known as Morneau Sheppell) is trading at much cheaper valuations. However, it is a more established company and not growing at the same triple-digit pace as Dialogue. As such a direct comparison is not relevant.

MindBeacon is also a recent IPO that has seen its share price crater. The company began trading at $11.24 per share in late December and has since lost more than 50% of its value. It is now trading at only 7.5 times sales and 2.7 times Fiscal 2022 revenue estimates. However, it is less established and growth rates also trail those of Dialogue.

That leaves WELL Health Technologies as likely the best comparator in terms of valuation. One of the fastest growth virtual health stocks on the TSX Index, WELL has held up better than most in the industry and is also growing by triple digits.

As of writing, WELL Health has a P/S ratio of 17 (one of the most expensive in the industry) but on a forward basis, it is trading at only 3.6 times Fiscal 2022 revenue estimates. That makes it one of the cheapest.

All things considered, Dialogue looks to be fairly valued here. Should the industry start to pick up steam again, I’d expect Dialogue to do quite well. Now that the price has corrected, valuations are beginning to look a lot more respectable and is one investors may want to keep an eye on.

Interested in commodities and the companies operating within the sector? We took a look at Nutrien.