Index Investing News
Sunday, May 25, 2025
No Result
View All Result
  • Login
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion
No Result
View All Result
Index Investing News
No Result
View All Result

Accolade: FY25 And Long-Term Targets Inspire Confidence (NASDAQ:ACCD)

by Index Investing News
May 27, 2023
in Stocks
Reading Time: 6 mins read
A A
0
Home Stocks
Share on FacebookShare on Twitter


Anchiy

Investment thesis

I recommended going long Accolade (NASDAQ:ACCD) in January when the stock was trading at $9.55, and that recommendation played out well, with the stock going as high as $17. I believe ACCD’s value proposition remains strong as the challenges faced by individuals navigating the healthcare system still exist. ACCD is well-positioned to address these issues by utilizing its proprietary technology and health assistants. I am reiterating my Buy rating on the stock after the company reported a strong 4Q23 profit and upgraded its FY25 margin target (during the Analyst day). While the stock has fallen steeply after the earnings, I believe it is not warranted, and hence, presents another opportunity for investors to buy the stock with a better fundamental outlook today.

Demand trend

The results for 4Q23 show that the demand trend for ACCD has remained high. As a result of commercial account membership growth that has been relatively immune to the macro environment, revenue increased by 5.6% to $90 million. Although margins were slightly lower than normal, this was primarily due to ACCD recognizing a larger number of performance guarantees [PG] in Q1, Q2, and Q3 of FY23 than usual, which reduced the number of high-margin contributions made in Q4 of FY23. The 33% increase in ARR bookings was the highlight, as it demonstrated the strong demand trend that ACCD is enjoying. In addition, management has stated that there is no sign of a slowdown in the current demand environment for navigation and advocacy solutions. The fact that expansion was seen across commercial, government, and consumer channels is even more promising. I don’t think ACCD’s expansion was a fluke; rather, I attribute it to the company’s diversified product line-up and streamlined business processes, which encouraged a greater number of customers to sign up for more than one service. Given that one contract usually lasts three years, ACCD’s FY25 target was further de-risked by this excellent performance. As the size of ACCD’s customer base grows, I believe it will become easier for the company to increase its ARR through up- and cross-selling.

FY25 margin

During the analyst day, ACCD shared optimistic projections for FY25 and a long-term revenue goal of more than $1 billion. Investors’ concerns about a possible slowdown in growth for FY25 were apparently allayed by management’s show of confidence at the analyst day. In particular, management has stated their conviction in reaching $500 million in sales. To achieve this, I expect to see ACCD’s leverage its virtual primary care services, along with the adoption of additional trusted partner ecosystem applications, to further extend its business model (i.e., greater reach with minimal additional cost) in the near future. Management also emphasized an enhanced margin profile, with an expected adj EBITDA margin of 2-4%. In my opinion, this is a significant improvement, as the projected increase in profitability from the previous guidance (1.5%) is now 3% (double). This increase in margin target, driven by successful restructuring efforts that contributed to improved operational efficiency, is likely to be structural and sustainable. Long-term, management has set an ambitious goal of exceeding $1 billion in revenue by FY29 and aiming for adj EBITDA margins of 10% to 15% (implied EBITDA of $125 million). Taking a look at the top-line target, I wouldn’t say it’s impossible because management has several options for generating expansion. For instance, it could expand into adjacent markets by focusing on them, expanding its existing market share by upselling and cross-selling to existing customers, and developing new products. However, it’s important to note that, assuming $500 million in revenue in FY25, this goal will only be reached if the company maintains a 19% CAGR in the years between FY25 and FY29. All in all, I believe the analyst day has shed a lot of information about the long-term targets of the firm, and if management meets these targets consistently, I think the stock will do very well from here. If we assume ACCD trades at the S&P forward EV/EBITDA multiple of 12x at FY29. The business will be worth $1.5 billion in enterprise value (vs the $821 million today), which implies nearly a double from today.

Competitive advantage

ACCD’s secret sauce is its custom-built platform, which is backed by a mountain of data and designed with the care team, members, and customer in mind. The Clinical Foundation Score [CFS], which takes into account a wide variety of factors, is a key part of what makes this platform so attractive to me. The CFS also takes into account social risk factors and the member’s healthcare relationship when determining the most effective method of member engagement with the goal of increasing conversion. I think there are many benefits for the care team when costs can be predicted more precisely. One advantage is that they can see more clearly how to systematically increase profits. ACCD introduced a new improvement at the analyst day, which I think will increase the care team’s efficiency even more. The True Health Dashboard, which evaluates the effectiveness of referrals and member engagement within a closed-loop reporting framework, is one such improvement that will help the care team more clearly illustrate and measure cost savings for employers.

Partner ecosystem

In the context of the rapidly developing digital health ecosystem, I see great value in ACCD’s trusted partner ecosystem. In the current macro environment, businesses are looking to stay ahead of the competition by providing attractive benefits packages, but they need help evaluating the wide variety of digital health point solutions available. Here is where ACCD comes into play. Accolade’s approach to their partner ecosystem is quality-driven; they prioritize working with the market’s top-tier providers. By streamlining the procurement and implementation process, ACCD helps customers save time and money while also benefiting its point solution partners through improved distribution, and higher member utilization. For ACCD, I see this as a promising and potentially profitable growth driver over the next few years because of the margin-accretive nature of increasing the partner network (cost little to extend ACCD reach).

Valuation

I believe ACCD is now trading relatively cheap compared to its history as well. ACCD used to trade in the range of 8x to 10x forward revenue back in 2021 when it was growing 20+%. Today, ACCD trades at just 2x forward revenue but is expected to grow at ~20% (using management guidance). Even if we adjust for the higher interest rates today (which I expect to come down to a more normalized level), this discount seems to be too steep. I would also note that the profit margin outlook today is much better as well (management did raise their margin guide by 2x, as mentioned above).

Risks

The problem with ACCD stock, in my opinion, is the lack of profits, and if one were to look at the LTM figures, operating losses is >100%. While the increase in margin guidance is good, I believe a lot of investors are very skeptical about the stock, and most will shun it until profitability is within reach (less than 2 years in my view). The stock is unlikely to screen well, as it falls into the realm of decent growth but huge losses. This is unlike those high-growth software companies that are growing at >30% and pass the rule of 40. If rates were to increase further, growth slows down further, or management misses any part of its profit outlook, my worry is that the market will punish the stock by re-rating the valuation downwards. The stock might work in FY29, but the path to FY29 might be a very painful one.

Conclusion

The demand trend for ACCD remains high, as evidenced by the strong growth in commercial account memberships and increased revenue. The company’s diverse product line-up and streamlined business processes have led to successful expansions across commercial, government, and consumer channels. Management’s optimistic projections for FY25, including an improved margin profile and a revenue target of $500 million, instill confidence in ACCD growth trajectory. The trusted partner ecosystem further enhances the company’s competitive advantage and offers potential for margin accretive growth in the future. Considering these factors, I maintain a positive outlook on ACCD and believe that the recent decline in stock price presents a favorable opportunity for investors to capitalize on its better fundamental outlook.



Source link

Tags: AccoladeconfidenceFY25InspireLongTermNASDAQACCDtargets
ShareTweetShareShare
Previous Post

Global 360: Dollar Strengthens, Treasury Yields Rise

Next Post

Grand Master of Reputation – Econlib

Related Posts

THW: Revenue Traders Probably To Face A Large Distribution Minimize

THW: Revenue Traders Probably To Face A Large Distribution Minimize

by Index Investing News
May 25, 2025
0

This text was written byObserveTrapping Worth is a crew of analysts with over 40 years of mixed expertise producing choices...

LRGF: Low-Charge Issue ETF With Convincing Efficiency Is A Purchase (NYSEARCA:LRGF)

LRGF: Low-Charge Issue ETF With Convincing Efficiency Is A Purchase (NYSEARCA:LRGF)

by Index Investing News
May 25, 2025
0

This text was written byObserveVasily Zyryanov is a person investor and author.He makes use of numerous methods to seek out...

TreeHouse Meals: Effectivity Beneficial properties Priced In, Truthful Valuation Helps Maintain (NYSE:THS)

TreeHouse Meals: Effectivity Beneficial properties Priced In, Truthful Valuation Helps Maintain (NYSE:THS)

by Index Investing News
May 24, 2025
0

This text was written byObserveI'm an enthusiastic fairness analysis and funding analyst with a powerful curiosity in making use of...

Seagate Know-how Holdings plc (STX) Seagate 2025 Investor and Analyst Convention – (Transcript)

Seagate Know-how Holdings plc (STX) Seagate 2025 Investor and Analyst Convention – (Transcript)

by Index Investing News
May 23, 2025
0

Seagate Know-how Holdings plc (NASDAQ:STX) Seagate 2025 Investor and Analyst Convention Name Could 22, 2025 9:00 AM ET Firm Members...

2 BDCs That Qualify For The Retirement Earnings League

2 BDCs That Qualify For The Retirement Earnings League

by Index Investing News
May 23, 2025
0

This text was written byObserveRoberts Berzins has over a decade of expertise within the monetary administration serving to top-tier corporates...

Next Post
Grand Master of Reputation – Econlib

Grand Master of Reputation - Econlib

WSJ Says a Housing Bust is Coming For Small-Time Investors—Here’s Why They Might Be Right

WSJ Says a Housing Bust is Coming For Small-Time Investors—Here's Why They Might Be Right

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

RECOMMENDED

Infographic: AMD Q1 2025 income and earnings beat estimates

Infographic: AMD Q1 2025 income and earnings beat estimates

May 7, 2025
New Jersey Bans Secure, Efficient Ammunition – FREEDOMBUNKER

New Jersey Bans Secure, Efficient Ammunition – FREEDOMBUNKER

February 17, 2025
‘Who does he suppose he’s?’ Elon Musk says Invoice Gates shouldn’t fear about youngsters welfare as he was near pedophile Epstein

‘Who does he suppose he’s?’ Elon Musk says Invoice Gates shouldn’t fear about youngsters welfare as he was near pedophile Epstein

May 20, 2025
FirstFT: Consultations begin on ‘Edinburgh reforms’

FirstFT: Consultations begin on ‘Edinburgh reforms’

December 9, 2022
Kamala Harris Is Not Instantly Accepting Crypto Donations, a PAC Is, Coinbase (COIN) Says

Kamala Harris Is Not Instantly Accepting Crypto Donations, a PAC Is, Coinbase (COIN) Says

September 5, 2024
Micah’s Delivery Story | Cash Saving Mother®

Micah’s Delivery Story | Cash Saving Mother®

August 4, 2022
With Manhattan Rents Rising, She Fled to Queens With a 0,000 Budget

With Manhattan Rents Rising, She Fled to Queens With a $200,000 Budget

January 5, 2023
UK economic system did not develop in third quarter

UK economic system did not develop in third quarter

December 23, 2024
Index Investing News

Get the latest news and follow the coverage of Investing, World News, Stocks, Market Analysis, Business & Financial News, and more from the top trusted sources.

  • 1717575246.7
  • Browse the latest news about investing and more
  • Contact us
  • Cookie Privacy Policy
  • Disclaimer
  • DMCA
  • Privacy Policy
  • Terms and Conditions
  • xtw18387b488

Copyright © 2022 - Index Investing News.
Index Investing News is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion

Copyright © 2022 - Index Investing News.
Index Investing News is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In