Telemedicine operator NextGen Healthcare, Inc. (NXGN) is a leading company in the telehealth industry, with a market capitalization of $1.25 billion. NXGN’s shares have risen 116.6% over the past year, and 46.6% over the past six months. However, the stock still looks relatively undervalued given its impressive earnings growth prospects.
NXGN’s EPS is expected to rise 16.9% year-over-year in fiscal 2021, while its annual revenues are projected to rise 2.3% over this period to reach $552.68 million.
NXGN has been named a Market Leader in Featured Customers’ Summer 2020 Medical Practice Management Customer Success Report, and Fall 2020 Telemedicine Software Customer Success Report. The company enabled more than one million patient visits through telehealth solutions in 2020.
Here’s what we think could drive NXGN’s performance in the near term:
The Future of Telemedicine
The global telehealth industry grew at an accelerated pace in 2020, driven by the COVID-19 pandemic-induced disruption in the healthcare systems worldwide. The rising number of patient admittances and multiple COVID-19 variants have increased the demand for intricate software solutions in the healthcare industry. While most countries are now stabilizing following mass vaccine distribution, the popularity of telehealth companies is here to stay, given the comprehensive cloud-based tracking and online appointment booking services they afford, The global telehealth market is expected to rise at a CAGR of 18.4% over the next five years to achieve a $22.92 market valuation in 2025.
In terms of its short-term growth prospects, the telehealth industry is well-positioned to benefit from a potential fourth wave of the pandemic; more than 25 states have reported a rise in COVID infected patients. Axios reported a 17% week-over-week rise in average daily cases during the last week of March, averaging 63,000 cases per day. With COVID-related hospitalizations rising again, people are expected to stick with telehealth consultations.
Trading at a Discounted Valuation
In terms of non-GAAP forward p/e, NXGN is currently trading at 19.32x, 20.6% lower than the industry average 24.35x. The company’s forward ev/ebitda and ev/sales multiples of 11.15 and 2.23, respectively, are significantly lower than the respective industry averages.
Also, its forward price/cash flow ratio of 4.22 is 76.7% lower than the industry average 18.10.
Consensus Price Target Indicates Potential Upside
NXGN has an overall rating of 1.85, indicating mixed analyst sentiment. Of the nine Wall Street analysts that rated the stock, three rated it Buy while six rated it hold.
Nevertheless, analysts have issued a median price target of $12.44 for NXGN, indicating a 13.9% potential upside.
POWR Ratings Reflect Rosy Prospects
NXGN has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
NXGN has a B grade for Quality, Growth, and Value. The company’s trailing-12-month ROE, ROA, and ROTC margins compare favorably with the negative industry returns, thereby justifying the Quality grade. In addition, NXGN’s levered free cash flow and total assets have increased at CAGRs of 28.3% and 167%, respectively. This, coupled with the stock’s relative undervaluation, explains the Growth and Value grades.
Of the 80 stocks in the Medical – Services industry, NXGN is ranked #4. In addition to the grades we’ve highlighted, one can check out additional NXGN Ratings for Stability, Momentum, and Sentiment here.
There are 22 other stocks in the Medical – Services industry with an overall rating of A or B. Click here to view them.
NXGN is at the forefront of the healthcare digitization drive in the United States, with its proprietary software NextGen Virtual Visits being one of the biggest online appointment scheduling and bill payment platforms. As several non-emergency medical procedures are being cancelled and with a potential fourth wave of COVID-19 infections that need to be controlled, the demand for NXGN’s products and services should rise nationwide.
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NXGN shares were trading at $18.68 per share on Monday afternoon, up $0.01 (+0.05%). Year-to-date, NXGN has gained 2.41%, versus a 9.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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