Healwell AI stock: turnaround has room to run

Healwell AI (TSX: AIDX) has had an impressive turnaround, making it one of the best-performing Canadian technology companies this year. Its stock is already up by over 100% in 2024, helped by its investments in Artificial Intelligence (AI), its partnership with Well Health Technologies, and its improving balance sheet. 

It has jumped by ~620% in the past 12 months, beating popular AI names like Nvidia (NVDA) and SoundHound AI (SOUN).

Turnaround continues

Healwell AI, formerly known as MCI OneHealth, has implemented a strong turnaround that has saved the company from bankruptcy. Before this turnaround, MCI OneHealth operated two primary businesses in Canada: its primary healthcare clinics and an innovation arm.

As part of its turnaround, the company folded its struggling clinics and sold them to Well Health. Well Health, which I covered here in 2022, has now grown to become the biggest operator of outpatient clinics in Canada. Its technology solutions provide services to over 9,400 providers in the US and Canada.

Well Health’s acquisition of MCI OneHealth also included equity investments that made an equity investment in HealWell, becoming its biggest shareholder. Hamed Shabhazi, Well’s founder, was appointed the Chairman of Healwell earlier this year. The two are also big partners, with HealWell providing technologies to Well Health.

At the same time, HealWell is now a leaner company that shed hundreds of jobs following its divestment of its clinics business. It has also boosted its balance sheet by raising additional cash. It raised $29.5 million through convertible debt and equity. 

Healwell aims to be a leader in healthcare AI

The Artificial Intelligence technology is expected to have major implications in the next few years. A report published earlier this year showed that the global AI in healthcare industry was valued at $4.88 billion in 2020 and that it was expected to reach $2028 billion in 2028. 

A separate report revealed that the industry would have a CAGR of 48.1% by 2029, reaching over $148.4 billion. This view is supported by the size of the healthcare is and ways that the technology can help.

AI can help in drug discovery and development, research, disease diagnostics and testing, precision medicine, and clinical trial among other areas. Healwell aims to be a major player in the AI industry by leveraging its partnership with Well Health and through making strategic investments and buyouts.

Through its partnership with Well Health, the company powers the Well Health.ai platform. This platform helps to streamline patient documentation and provide more clinical decision support. Healwell also provides AI Inbox Admin and AI Decision Support.

Healwell has invested in companies like Khure Health, PolyClinic, and Pentavere. Khure Health is an AI company that enables clinics to use big data to rapidly screen and identify patients with rare diseases. The solution is already being used by Well Health USA and Circle Medical Technologies.

Meanwhile, Healwell has a big share of Pentavere Research Group which has created an AI engine to identify patients eligible for approved medications or interventions. Like Khure, the service is already being used in key clinics in the US and Canada.

It also owns Intrahealth, a SaaS-based Electronic Health Records (EHR) company that is expected to generate about $12 million in revenues this year. 

Healwell aims to continue investing in these products to grow its market share in the US, Canada, and in other countries. It also aims to acquire other early-stage companies that are using AI technology to disrupt the healthcare sector. 

Revenue growth is continuing

I believe that Healwell’s turnaround strategy will help to supercharge its revenue momentum in the coming years. The most recent financial results showed that its total revenue came in at $7.32 million in 2023, a sharp decline from $10.2 million a year earlier.

Its revenue had been in a downward spiral after peaking at over $37 million in 2021. This decline was because of the weak performance of its clinics business, which explains why the divestment makes sense.

Healwell’s management believes that its business will continue recovering this year as its portfolio companies thrive. In a recent interview, the company’s CEO said that the hope is that it will become cash flow positive by the end of 2024 or 2025.  

Risks to the thesis

There are a few risks to this bullish view. First, there is the valuation element as Healwell AI has a market cap of over $124 million against 2023’s annual revenue of $7.32 million. 

This means that it has a trailing price-to-sales ratio of 16.7, which is higher than most companies, including Nvidia and Super Micro Computer. This valuation is still better than that of Soundhound AI, which has a P/S ratio of 17.8.

Therefore, Healwell AI will need to justify its valuation by demonstrating strong revenue and profitability growth. 

Second, there is the lingering risk of AI fatigue among investors, as evidenced by the recent drop of top AI companies. Nvidia has moved into a bear market by falling by over 21% from its highest point this year. The same is true among other AI companies like SoundHound, AMD, and SMCI.

Third, there is always a risk for companies focusing on growth through acquisitions. Data shows that between 70% and 80% of all M&A deals fail to achieve their desired goals. The best example of this is Teladoc’s acquisition of Livongo Health in 2020, a deal that created a $37 billion company. Today, the combined company is valued at just $2.2 billion.

Finally, there are dilution risks. While the company has adequate cash balances, there is a risk that the management will take advantage of the rising stock price to raise additional capital to deploy in acquisitions.

Bottom line

Healweall AI’s management has implemented what is turning into a strong turnaround for a company that was on the verge of bankruptcy because of its clinics business. Today, the company has become an asset-light organization in the fast-growing AI space. Its balance sheet is quite strong and the management expects to become cash flow positive this year.

However, as explained above, there are risks to the bullish view, which could affect its stock performance.

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