There is no doubt that the best path to wealth generation is to invest in quality stocks and hold them for years and even decades. Along the way, there is a chance to find a company that can become a “multi-bagger” or an investment that earns many times its original value. There are a few contributing factors that can help a stock go parabolic, increasing the chances of it becoming one of this rare type of investment.
Find companies that provide a new answer to a centuries-old problem, have huge centuries-old favorable winds, or have a large addressable market, and you’ll be on the right track. In very rare cases, you can find a company that meets all three of these boxes, greatly increasing the likelihood of multiplying your investments many times over. An investment in any or all of these companies will probably do well.
Teladoc and Livongo: a powerful one-two punch
Teladoc Health (NYSE: TDOC) was already in an enviable position before the coronavirus appeared. Patients gravitated towards the ease of virtual care offered by app-based doctor visits, without the need for a trip to the clinic. With the arrival of the pandemic and consequent home orders, the company was perfectly positioned to offer patients a safe and affordable alternative.
As a result, the number of visits to virtual offices increased, driving Teladoc’s financial performance in its wake. The numbers so far this year tell the story. In the first quarter, Teladoc’s total patient visits increased by 92%, increasing revenues by 41%. Things really took off in the second quarter, with total patient visits increasing by 203%, driving revenues up 85%.
Livongo Health (NASDAQ: LVGO) it was also doing great, providing a new solution to both patients and healthcare professionals. The company’s offerings help patients manage chronic conditions between regularly scheduled checkups with their doctors. Estimates vary, but there are up to 147 million Americans with at least one chronic condition, according to Livongo’s leadership. This can include a variety of problems, such as diabetes, high blood pressure, weight control, diabetes prevention, and behavioral health.
Through the use of connected devices, Livongo provides continuous and timely feedback to help patients manage their condition, thus improving their quality of life while reducing the cost of their healthcare, resulting in one of those rare cases. which is really beneficial for everyone.
The Livongo for Diabetes program was the one that started it all. It reported that enrollments increased 113% year-over-year in the second quarter, increasing revenue by 125% year-over-year. The company was already delivering exceptional results, with first-quarter enrollment growth of 100% and revenue that jumped 115%.
The companies announced in early August that Teladoc Health and Livongo Health would join forces, creating “the only consumer-centric virtual care platform for a full range of healthcare needs to address accelerating consumer and healthcare demand. customers”.
Investors were initially dubious about the combination, sending both stocks down 14% in the wake of the announcement. After investors digested the news, however, the shares resumed their upward trajectory.
Add a huge addressable market and Teladoc and Livongo really check all three boxes. Teladoc Health estimates its total addressable market at $ 30 billion. Livongo Health management believes the market for diabetes management alone will reach $ 16 billion, while solutions for the other chronic conditions it addresses represent an additional $ 18 billion opportunity. This puts the combined addressable market for these companies at a whopping $ 64 billion. To understand the breadth of the opportunity, consider this: the two companies’ combined revenue totaled $ 724 million last year, showing that they have barely scratched the surface of their respective addressable markets.
As social distancing took hold in the wake of the pandemic, the ancient tradition of signing deals in person was exposed for the outdated practice it is. DocuSign (NASDAQ: DOCU) it was already the undisputed leader in the electronic signature space, controlling around 70% of the market. But as companies looked for ways to make deals remotely, DocuSign was the obvious choice.
Going beyond just signing, the company has also developed a suite of cloud-based applications to automate the entire lifecycle of the agreement process, dubbed the DocuSign Agreement Cloud. The platform provides companies with all the tools they need to prepare, sign, act and manage their agreements. It can be something as simple as an offer letter from the human resources department, or more complicated, such as multi-page sales contracts between buyer and seller. It also integrates with a number of existing salesforce.com is Microsoft, among others, allowing users to create ready-to-sign contracts with just a few keystrokes.
DocuSign revenue grew 45% in the second quarter, accelerating from earnings of 39% in the first quarter. More importantly, nearly 95% of its revenue comes from subscriptions, providing a solid base of recurring revenue that will only grow from here. At the same time, revenue grew 61% year-on-year, while adjusted profits increased 17-fold.
The company’s addressable market fills the triplet of factors that could help fuel this multi-bagger future. DocuSign estimates that the market opportunity for digital signatures alone is $ 25 billion. The addition of the Cloud Agreement effectively doubles its total addressable market to $ 50 billion. DocuSign’s total revenue of $ 974 million last year is a drop in price from the opportunity that remains.
The fine print
There is a trade-off that comes with investing in these potential multi-baggers, as each of these companies is a high-risk, high-yielding stock, which is similarly high priced to many other high-growth companies. Teladoc, DocuSign and Livongo sell 19, 30 and 40 times their forward sales respectively, when a reasonable price / sale ratio is generally between one and two. Furthermore, these companies have yet to generate profits as they rush to gain market share.
So far, investors have been willing to pay for the impressive revenue growth and huge long-term potential of each of these high-flyers. Considering their impressive growth rates, they don’t seem like it almost expensive.
Plus, it’s not hard to think they’ll be multibaggers three to five years down the road, since they’ve already achieved so much already this year.