Companies part of the digital health industry gained significant momentum in 2020 as the COVID-19 pandemic acted as a massive tailwind. Several countries imposed lockdowns and travel came to a standstill. As clinics were closed, the demand for digital health solutions accelerated quickly.

According to a report from Grand View Research, the global telehealth market is forecast to reach $787.4 billion, indicating annual growth rates of 36.5% in the forecast period. A rapidly expanding addressable market allows companies such as MedAvail (MDVL) to grow revenue at a robust pace over a period of time.

The evolution of smartphones and strong internet connectivity has made telehealth products and services accessible at a reasonable cost, driving adoption rates higher.  Let’s see if MedAvail should be part of your portfolio given the above-mentioned factors.

An overview of MedAvail

Valued at a market cap of $161 million, MedAvail is a tech-enabled retail pharmacy company. It develops and commercializes self-service pharmacy, mobile apps, kiosks as well as drive-thru solutions in the U.S. and Canada.

MedAvail has two primary business segments which are Retail Pharmacy Services and Pharmacy Technology. Its MedCenter enables on-site pharmacy in medical clinics, employer sites, and retail store locations. It also establishes an audio-visual connection to a pharmacist enabling the dispensing of prescription drugs to the patient on a real-time basis. Additionally, MedAvail owns and operates SpotRx which is a retail pharmacy platform.

The company has managed to increase sales from just $3.7 million in 2019 to $22.12 million in 2021. However, its operating loss widened from $20.7 million to $43.5 million in this period.

In Q4 of 2021, MedAvail reported revenue of $6.95 million, compared to $3 million in the year-ago period. However, its cost of sales also increased by 128% to $7.64 million.

What next for MedAvail stock investors?

Analysts tracking the stock expect MedAvail to increase sales by 86.8% to $41.33 million in 2022 and by 65.8% to $68.5 million in 2023. Comparatively, its adjusted loss per share might narrow from $1.34 in 2021 to $0.54 in 2023.

We can see that MedAvail stock is valued at a forward price to sales multiple of 4x which is quite reasonable given its growth rates. However, its less than impressive gross margins indicate, the company will have to grow revenue at a fast clip to turn profitable.

MedAvail ended 2021 with $19.7 million in cash and $12.25 million in debt which means it will have to raise equity capital and offset cash burn rates.

Earlier this month, MedAvail announced the closing of a private placement amounting to $40 million. It offered 37.6 million shares of common stock at an offer price of $1.0625 per share. The proceeds will be used for general corporate purposes as well as to fund strategic initiatives.

The Foolish takeaway

While there are several drivers positively impacting MedAvail stock, it remains a high-risk bet due to its small size and consistent losses. However, it might be a good acquisition target for some leading telehealth players.

I believe there are far better players in the telehealth industry, such as Teladoc (TDOC) and WELL Health Technologies (WHTCF), that should be considered instead of MedAvail right now.

MDVL shares fell $0.11 (-6.32%) in premarket trading Wednesday. Year-to-date, MDVL has gained 16.43%, versus a -7.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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