Health navigation solutions provider Castlight Health, Inc.’s (CSLT - Get Rating) platform connects health vendors, benefits resources, and plans into one comprehensive health and wellbeing experience. With increasing demand for the kind of services it offers, the stock of the San Francisco company has gained 93.4% over the past six months and 44.5% over the past month, to close yesterday’s trading session at $2.63, after hitting its 52-week high of $2.64.

But despite this impressive rally, the stock looks undervalued at the current price level, with a 2.29x forward EV/S, which is 69.3% lower than the 7.47x industry average. And in terms of forward P/S, CSLT’s 2.64x is 67.5% lower than the 8.12x industry average. With an increasing focus on modern healthcare services, CSLT is expected to witness further growth in the near-term, leveraging its wide portfolio of products and solutions.

We think that while the company’s business is still not profitable, its upbeat revenue outlook should help its  stock keep moving higher.

Click here to checkout our Healthcare Sector Report for 2021

Here are the factors that we think could influence CSLT’s performance in the upcoming months:

Increasing Focus on Healthcare

With a rebound in demand for healthcare services that were deferred during the COVID-19 pandemic, along with an  increasing focus on healthcare, healthcare spending is  likely to increase 6.5% in 2022, according to a report by PriceWaterhouseCoopers. CSLT is expected to play an important role in  helping to reduce healthcare costs. According to a study conducted  by actuarial firm Santa Barbara Actuaries Inc., employers that  implemented CSLT’s navigation solution achieved  significant financial savings, including a 9.1% year-over-year reduction in medical expenses.

Positive Developments

In March, CSLT launched a new COVID-19 vaccine navigation feature that is embedded  into its app. The feature provides employers with a convenient, centralized resource that allows employees to navigate COVID-19 vaccine eligibility and availability and access critical educational content. Also, CSLT collaborated with American Eagle Outfitters, Inc. (AEO) last November  to deliver a unified health and wellbeing benefits platform.  AEO will also deploy CSLT’s return to work solution, Working Well, for associates in the U.S. and Canada as they return to work.

Impressive Financials

While CSLT’s subscription revenue decreased 16.3% year-over-year to $32.11 million for the first quarter, ended March 31, 2021, its professional services and other revenue increased 345.5% year-over-year to $2.95 million. The company’s total cost of revenue for the quarter declined 11.9% year-over-year to $12.76 million. And its total operating expenses came in at $25.39 million, down 68.7% year-over-year. Its net loss decreased 94.7% year-over-year to $3 million in the first quarter.

The company also increased its revenue outlook. CSLT expects its revenue to come in between at $33 million and $35 million in the second quarter. In  2021, it expects revenue to be  in the range of $135 million – $140 million.

POWR Ratings Show Promise

CSLT has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, CSLT has a B grade for Sentiment, which is in sync with favorable analyst sentiment.

The stock has an A grade for Value, which is consistent with its lower-than-industry valuation ratios.

In addition to the POWR Ratings grades we’ve just highlighted, we’ve also rated CSLT for Growth, Stability, Momentum, and Quality. Get all the CSLT ratings here.

CSLT is ranked #24 of 77 stocks in the Medical – Services industry. If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of Strong Buy or Buy, you can access them here.

Bottom Line

CSLT has delivered  big returns over the past few months, capitalizing on the increasing demand for its services. The stock is currently trading significantly above its 50-day and 200-day moving averages of $1.99 and $1.75, respectively, indicating an uptrend. Given the rising demand for its services and its undervaluation, we think it could be wise to bet on the stock now.

Click here to checkout our Healthcare Sector Report for 2021

CSLT shares fell $2.63 (-100.00%) in premarket trading Thursday. Year-to-date, CSLT has gained 102.31%, versus a 15.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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