Is a Buyout the Most Likely Scenario for Amwell?

Is a Buyout the Most Likely Scenario for Amwell?

The telehealth company could possess significant value for businesses looking to expand into healthcare.

Telehealth company American Well ( AMWL 6.69% ), better known as Amwell, went public in the fall of 2020. Back then, it was a promising investment that had the backing of tech giant Google (which is part of Alphabet ). However, the wheels have come off for the stock, which now trades at a little more than $3 a share, nowhere near the more than $25 it opened at on Sept. 17, 2020.

Although the business isn’t actively seeking offers, the stock is struggling mightily these days, and its low value might make a buyout a realistic possibility. And some notable businesses have been showing interest in healthcare of late. Image source: Getty Images. Some corporate giants are expanding into healthcare

COVID-19 has been around for two years now, and more businesses have been focusing on healthcare since then, likely noting the attractive growth prospects in the sector. Telehealth, for instance, has become one of the hottest new growth opportunities. Grand View Research projects that by 2028, the global telehealth market may be worth more than $787 billion, expanding at a compound annual rate of 36.5% until then.

That level of growth is sure to attract companies focused on padding their top lines. Amazon has made multiple moves into healthcare in recent years, launching its pharmacy business in November 2020 after acquiring online pharmacy PillPack a few years earlier. Last month, Amazon also announced it was rolling out its telehealth service nationwide .

Another tech company, Oracle , announced in December that it had made a tender offer to acquire health information company Cerner for $28.3 billion. Meanwhile, big-box retailer Walmart has been opening health centers in multiple parts of the country, giving its customers a way to save on healthcare. Last year, it also acquired telehealth provider MeMD. Why Amwell could be an attractive acquisition target

Over the past three years, Amwell has incurred net losses totaling just under $494 million. And although there has been growth, sales were up a modest 3% last year, totaling $252.8 million.

In the company’s defense, however, it is transitioning its business so that it is more of a telehealth hub (as opposed to relying on telehealth visits of its own to drive revenue) and creating an ecosystem where other companies can deploy telehealth solutions under its new Converge platform. Given the heightened popularity of telehealth and the potential it possesses, this could be a transition that pays off.

Combined with the company’s relatively clean balance sheet, this could make Amwell an attractive option for businesses looking to expand into telehealth. With no debt on its books and cash and equivalents of $746.4 million as of the end of 2021, the company is in a good position to absorb future losses and cash burn. This past year, it used up $141.5 million to fund its day-to-day operating activities. At that rate, it likely wouldn’t need a huge cash infusion from a potential acquirer. Is a buyout possible ahead?

Amwell’s market cap is just over $800 million. That would be a modest price tag for a top tech company to spend on expansion into what looks to be a promising opportunity in telehealth over the next several years. And the further that Amwell falls in price, the more attractive an acquisition it likely becomes. In just one year, the stock has cratered 87% (while the S&P 500 is up 6%).

The sell-off appears to be extreme by any measure, and perhaps is an indicator of the doubts investors have in Amwell’s ability to attract companies to its Converge platform. There’s definitely some risk here, which could lead to more losses for the stock in the future if the business fails to turn things around.

Potential acquisitions can be difficult to predict, but given the attention that the healthcare industry has been gaining over the past few years, Amwell’s business could be too attractive for an acquirer to pass up if it drops further in price.

For investors, however, unless you have a high risk tolerance and are willing to be patient with the stock, Amwell’s probably not an investment you want to be putting in your portfolio. While the potential is high for it to soar if its Converge platform proves to be a hit, there’s also the very real risk the stock crashes even further if things don’t work out that way. Should you invest $1,000 in American Well Corporation right now?

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