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Web health companies: Not too healthy themselves

Web health companies: Not too healthy themselves

posted by Virendra Singh Chauhan | published by Amigobulls on

WebMD and NTRI overpriced

WebMD Health Corp (NASDAQ:WBMD) and NutriSystem Inc. (NASDAQ:NTRI) have one thing in common. They are online companies providing health related products/services. While these company’s help keep you healthy, we at Amigobulls recommend a check of their financial health. The companies have seen phenomenal stock gains with WebMD health Corp shares soaring about 200% in the last one year and NutriSystem shareholders gaining 157% over the same period (as of Nov 15th closing price). Yes we do agree the numbers are huge and many investors will be smiling from the returns they have got. However, having made the right decision to buy these stocks, investors must make the important decision of deciding when to sell them or else, the profits will remain just book profits.

 

So what has changed at these two companies, which has resulted in super normal returns from WBMD and NTRI stocks? We take a look at the valuation numbers and fundamentals of the two companies.
 

WebMD stock NutriSystem stock
1 year revenue growth (in %) 2.86 -12.60
1 year net income growth (in %) -136 -2.78
1 year price change (in %) 199 158
Price to sales ratio (LTM PS ratio) 4 2
Price earnings ratio (LTM PE ratio) NA 647
PE ratio annualized 168 485

 

WebMD Health Corp

WebMD health Corp has had a one year revenue growth of 2.86% accompanied by a huge fall of 136% in the Net Income. The management’s Q4 2013 guidance of revenues to be in excess of $142 million represents a 7% Y/Y growth in the quarterly revenues. The Net Income guidance of $7.7 million represents a $ 13 million increase from Q4 2012.

While the fundamental performance was far less than attractive, the current valuation multiples of the company make the stock price seem more like a house of cards. The company enjoys an LTM price to sales ratio of 4 and an annualized P/E ratio of 168.
 

NutriSystem Inc.

NutriSystem Inc. did not fare any better as far as the topline and bottom line are concerned. The revenues had a one year fall of 12.6% while the Net Income fell by 2.78% over the same period. NutriSystem management announced that Q4 2013 revenues will see a Y/Y growth in mid-single digits, a number which isn't as eye popping as the stock gains.

The valuation multiples of NutriSystem too have been far from attractive with the company’s stock currently trading at a LTM price to sales ratio of 2 and a LTM price earnings ratio in excess of 600.
 

Conclusion

The current valuation multiples of the two companies are super-premium. The super-premium levels of the current price combined with the weak fundamentals make the two stocks an insane gamble and not just an extremely risky bet. We the bulls at Amigo would be far more comfortable going short on the two stocks rather than trying to benefit from any further upside as the stocks have a huge downside risk fundamentally. As an investor this might be the right time to book profits  and count the gains which you have had, as the gains from these two stocks have been gambles which came off rather than investments which paid off.

 

View latest WebMD stock price, and NutriSystem stock price.

Disclaimer: We do not hold any stake in the aforesaid stocks. Please read our detailed disclaimer.

About the author

Virendra Singh Chauhan
Virendra Singh Chauhan is a Financial Analyst at Amigobulls. An MBA(Finance) with specialization in investments, Virendra is a value investor who loves to analyze stocks and involve in discussions regarding investments in general. His areas of interest include personal finance as well as entrepreneurship, apart from equity analysis in particular. He loves companies with strong cash flows and profits today rather than companies built on promises of future. Contact him at virendra.chauhan AT amigobulls.com.
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