Is LifeMD a Healthy Stock Selection?

LifeMD (NASDAQ:LFMD) is a lesser-known player in the rapidly growing $9.5 billion U.S. telehealth market. Despite its small stature, the company may have some advantages when it comes to gaining share of a market that research firm Arizton forecasts will grow 29% annually over the next five years.

In the wake of COVID-19, more Americans are embracing telemedicine to receive reliable medical care from the comfort of their own homes. LifeMD is one of several companies racing to capitalize on this trend by rolling out a mix of unique services. As it has feverishly built out its telehealth portfolio, sales have been on the rise—and its latest report confirmed that the business is alive and well.

 What Does LifeMD Offer?

Formerly Conversion Labs, New York-based LifeMD is a direct-to-patient telehealth company that offers virtual healthcare solutions in all 50 U.S. states. It has a network of doctors that provide virtual medical care and prescription drug services on a subscription basis to more than 300,000 patients.

Rex MD is the company's men's telehealth platform that offers treatment and medications for erectile dysfunction (E.D.) and other men's health issues. It also offers telehealth hair loss services for men and women through the Shapiro MD brand.

LifeMD will be launching two new services this year. Nava MD is small teledermatology business that caters to women's skin care needs. Next quarter the company will launch a namesake LifeMD service focused on the much broader primary and concierge care market. The subscription-based service will be LifeMD's biggest opportunity yet based on the size of the addressable market globally. The cloud-based technology platform will connect doctors, patients, and pharmacies for in a single, comprehensive virtual care experience.

In addition to its range of telehealth services, LifeMD sells its own over the counter (OTC) products that are promoted by its cavalry of physicians and social media influencers.

In a telehealth market that is seeing a wave of new entrants, LifeMD enjoys not a first, but an early mover's advantage having been in the business since 1987. Its focus on the online prescription drug market also gives it an edge over competitors that strictly offer virtual medical treatment. Alliance Bernstein estimates that 70% of the retail prescription drug market will be online by 2023.

What Did LifeMD Report for the 4^th Quarter of 2020?

LifeMD preannounced fourth-quarter results last month so the market largely knew what to expect. Revenue soared 227% to $12.9 million for the quarter and doubled to $37.3 million for the full year.

Next quarter management sees revenue increasing another 30% sequentially as the customer base increases and product portfolio expands. For all of 2021 revenue is expected to be $90 million at the midpoint which equates to 142% year-over year growth.

Fourth-quarter gross profit came in at $8.9 million for a healthy 69% gross profit margin. Adjusted EBITDA was a negative $9.7 million for the quarter and negative $16.3 million for 2020.

So, the takeaway here is that LifeMD's revenues continue to grow nicely and are being increasingly diversified. The net loss has steepened in recent quarters, but this is a reflection of the ramp in marketing expenses to acquire new patients in a favorable telehealth environment. LifeMD is striking while the telehealth iron is hot and should eventually be rewarded with a better bottom line result as operations scale.

Perhaps the most attractive aspect of the stock is that subscription revenue is becoming a dominant part of the business model. Management estimates that 80% of the current quarter revenue will be subscription-based compared to 63% in the year prior. This annual recurring revenue model provides the kind of stability and visibility that investors appreciate.

 Is LifeMD Stock a Buy?

LifeMD is a $437 billion market cap stock and as such is only appropriate for the most risk-taking of investors. In this sense, it is also a poor man's Teladoc, a much larger telemedicine leader with a capitalization nearly 100-times that of LifeMD.

That's not to say that LifeMD can't command a significant part of the telemedicine and online pharmacy markets. Where it can win is cost and convenience both of which are pillars of its customer acquisition strategy. It's specializations in men's and women's health matters is also a differentiator.

Both firms that cover LifeMD call it a 'buy' including B.Riley Financial which gave the stock a $35 price target this week implying it can double from here. Following a meeting with management, the analyst cited better than expected performances and accelerating sales across LifeMD's brand portfolio.

Another bullish sign is the recent insider buying in LifeMD stock. Since last month, three corporate insiders have purchased shares and all but one insider transaction dating back to July 2020 have been buys.

LifeMD did a 1-for-5 reverse split in October 2020 and uplisted to the Nasdaq. This effectively repriced the stock at $7.00. It then went on to climb as high as $33.02 last month. Since then the stock price has been cut in half with the entire telehealth space pummeled by a nearsighted market view that these companies are simply pandemic beneficiaries.

This has given LifeMD a more palatable valuation. The 50% off sale in LifeMD is worth buying considering the very healthy long-term growth trajectory of the industry.