As we approach the November election, I expect a key talking point will center on the country’s healthcare system and its rocketing costs. As we look ahead, healthcare companies will be under pressure to contain costs by reducing excessive spending and wastage.
This move will benefit companies like Health Catalyst Inc (NASDAQ:HCAT). Health Catalyst is a provider of innovative data and analytics technology and solutions to healthcare organizations.
Clients access the company’s cloud-based analytics platform, including data of over 100 million patients and over trillions of datapoint.
HCAT stock launched its initial public offering at $37.37 in July 2019, trading as high as $49.85 in August 2019 prior to sliding.
At this point, Health Catalyst stock is 21% below its 52-week high of $41.26, underperforming the S&P 500 with a 1.7% decline this year.
Health Catalyst Inc is hovering just below its debut price, where I see an aggressive opportunity to enter.
A look at the chart of Health Catalyst stock shows the mixed trading following the IPO in July 2019.
HCAT stock managed to break the trendline resistance in late October 2019 to above $40.00, but the move failed to hold.
Chart courtesy of StockCharts.com
From a technical viewpoint, a sustainable upside move could drive HCAT stock to above $50.00. The downside risk is at $30.00.
Fantastic Revenue Growth Bullish for HCAT Stock
Health Catalyst Inc has limited financial history, but the revenue growth has been terrific so far, with revenues doubling from 2017 to 2019.
|Fiscal Year||Revenue (Millions)||Growth|
Health Catalyst expected to ramp up revenues by a more normalized 16.5% to $180.5 million this year and 19.7% to $216.2 million in 2021. (Source: “Health Catalyst, Inc. (HCAT),” Yahoo! Finance, last accessed September 11, 2020.)(Source: “Health Catalyst, Inc.,” MarketWatch, last accessed September 11, 2020.)
The moderation in the revenue growth rate is not a surprise; it generally occurs as a company begins to ramp up its revenue base.
The key for HCAT stock is that the company needs to contain costs and offer a pathway to profits.
Health Catalyst Inc reported bigger generally accepted accounting principles (GAAP) losses in 2018 and 2019.
|Fiscal Year||GAAP Diluted EPS||Growth|
(Source: MarketWatch, op. cit.)
There is some encouraging news. Health Catalyst is estimated to narrow its adjusted loss to $0.82 per diluted share this year, followed by a loss of $0.63 and as low as $0.23 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)
Free cash flow (FCF) is negative, but HCAT saw improvement in 2019.
|Fiscal Year||FCF (Millions)||Growth|
(Source: MarketWatch, op. cit.)
And while Health Catalyst Inc sorts out its cost side, the balance sheet is healthy with strong working capital, debt of $179.4 million, and cash of $353.1 million. (Source: Yahoo! Finance, op. cit.)
In my view, the key for Health Catalyst is to narrow its losses and provide a pathway to profitability as early as 2022.
HCAT stock has seen increased institutional buying. There are currently about 140 institutions holding 57% of the outstanding HCAT shares. (Source: Yahoo! Finance, op. cit.)