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American Well (AMWL) Down 59% YTD: Should You Still Hold?

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Shares of American Well Corporation (AMWL - Free Report) have been on a downslide this year as investors turned away from the stay-at-home stocks amid the reopening of economies.

The telehealth company, which provides medical consultation to patients, saw tremendous demand for its products and services last year as COVID-19 confined people to their homes to stem the coronavirus spread.

Year to date, the stock has lost 59% compared with the industry’s decline of 31.7%. In 2020, the stock gained 10%. As the grip of coronavirus started subsiding, vaccination became rife and restrictions on venturing out were lifted, the stock witnessed a continuous decline. Its peer Teladoc Health, Inc.  (TDOC - Free Report) is down 32.2% year to date.

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What’s Dragging the Stock?

It is presumed that as people start going outdoors, the visit to clinics and physicians will resume. After all, face-to-face or in-person consultation is more satisfactory than an online/virtual treatment. Since telemedicine was the only option left amid social distancing enforced by COVID, with the infection receding now, demand for American Well’s services will be tepid.

While on one hand, demand is tapering, on the other, competition is heating up. Recently, many telehealth companies came out with their Initial Public Offering (IPO) to scale up their operations. Moreover, the space also attracted the retail behemoth Amazon.com, Inc. (AMZN - Free Report) , which launched its remote care product Amazon Care. Cigna Corp. (CI - Free Report) also acquired the telehealth company MDLive.

Is All Lost?

It will be an overstatement to make that all will start visiting the doctor’s clinics. If not wholly, some part of the migration of health to online will continue to stay. Moreover, it depends on how the Delta variant of the coronavirus worsens its transmission. If the COVID cases rise once again, the share of virtual consultation also increases along with it.

Though it is clear that the telehealth space is getting crowded but the company is fast expanding its business via acquisitions and adding to its portfolio of products and services. This month, it snapped up two major deals comprising the healthcare start-ups SilverCloud Health and Conversa Health for a combined value of $320 million.

With these companies, American Well aims to be omnipresent across the patient’s care journey. The SilverCloud bolsters the company’s presence in the behavioral healthcare area to treat patients with issues like anxiety and depression. The platform is widely used by more than 300 organizations in the United States and above 80% of the U.K.'s National Health Service Mental Health Services. SilverCloud’s international presence lends American Well a global presence, especially in the UK and Ireland, thus diversifying its revenues and expanding its market opportunities.

Conversa Health offers automated and personalized digital check-ins with patients. These digital technologies will be integrated into the company’s Converge platform to provide hybrid care covering physical, virtual and automated services. The company expects these assets to grow in excess of 100% next year, adding approximately $30 million to its subscription technology business.

On a GAAP basis, there will be little to no contribution to its 2021 revenues but approximately $30 million will be contributed to the top line in 2022. Both companies in aggregate are forecast to achieve 70% gross margins in 2022.

These buyouts will fortify the company’s position in the telehealth market. It will not be surprising to come across another acquisition announcement from the company as it tries to achieve rapid growth in this fast-growing telehealth industry.

The stock, which currently carries a Zacks Rank #3 (Hold), should thus be kept in the investment portfolio for the long haul.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.