Livongo Health stock soared +18% today on news that Livongo Health’s diabetes contract announced on October 7, 2019, from the Federal Employees Health Benefits Program, which the company expects will add $20M-$25M of revenue in 2020 and $30M-35M of revenue in 2021.
Analysts are pumping the stock, claiming that this means the company will be able to exceed its substantial growth ramp communicated during its initial public offering roadshow.
Grosslight recommends “aggressively accumulating” shares of Livongo Health at these levels and reiterates an Outperform rating on the name with a $50 price target. The target offers 190% upside following the stock’s “unwarranted” 45% sell off post Livongo’s Q2 earnings report, Grosslight tells investors in a research note. The stock in morning trading is up 8% to $18.76.
Here’s the real story. This hyped contract will only add $20 million in annual revenue. The stock is currently overvalued with a market cap of $1.97 billion. Why over valued? It only did $112 million in sales last year. The current P/S ratio is 17.49. Like we’re talking about an additional $20 million in sales being worth only about a 0.20 reduction in the P/S ratio.
MarketWatch gets the bullsh*t award though with this doozer of a headline: “Livongo’s stock soars after awarded FEHBP contract, adding up to $60 million in revenue”. Then when you read the article you learn that the $60 million in revenue is over two years! Nobody measures revenue in two years. The headline makes it seem like that’s $60 million in revenue in a year.
The company itself is a “health behavior” company. In other words, if you have diabetes a computer or coach will tell you what foods you should or shouldn’t eat. So in other words, instead of your insurance company having to pay a licensed doctor to talk with you, they want to save money and throw some lower paid nurse or coach at you through Livongo. Let’s lower the cost of health care at patients expense, great model. Are they going to lower your monthly health insurance payment when they push you off of your doctor and onto a lower paid coach? Don’t hold your breath.
Soon, the insurance companies will pay for you to talk to a doctor in India for your medical needs. Teledoctors from India, the next big thing!
I can hear it now:
India Coach/Doctor: You say you joking?
Patient: No, I’m choking.
India Coach/Doctor: I understand you are joking. Ok, ha ha, bye and please take survey and give me great score, bye.
Patient: Hello… choke… Hell o…
Automated voice: Please take a moment to take this survey on how we did to address your medical need today.
Here’s an idea, maybe one day we’ll be able to outsource our national 911 phone system to India and use the money we saved to support the Green New Deal and eliminate even more U.S. jobs!
LVGO stock was way overpriced in its IPO and has since plunged leaving a lot of rich and powerful people burned. As the lock up expiration approaches, these well-connected individuals and trading firms are looking for any little sliver of good news to hype higher than the moon to push the stock higher so they can dump after the lock up period.
Reality check: cows don’t jump over the moon.
Disclosure: We do not hold any position in LVGO stock.