Is Accolade Stock a Buy?

Healthcare technology company Accolade (NASDAQ:ACCD) has flown under most investors’ radars since its IPO in 2020. Despite this fact, Accolade is among the most promising young companies in the healthcare logistics space. 

Accolade is a cloud-based healthcare benefit navigation software company that offers a comprehensive platform for employers.

Using Accolade’s platform, employees can easily navigate workplace healthcare systems. The platform’s features cover everything from appointment booking to billing. According to the company’s self-reported data, Accolade achieves 90 percent consumer satisfaction rates while also saving employers an average of 5 percent by streamlining healthcare benefit management.

Accolade Revenues Up 9%

In the most recent quarter, Accolade brought in revenues of $93.2 million. This represents a 9 percent increase from the $85.5 million reported in the same quarter of 2022.

Cost of revenue increased from $47.6 million to $54.2 million, a jump of nearly 14 percent. More encouragingly, though, the company’s general and administrative expenses have dropped by nearly one-fourth since last year.

Accolade is still losing money, though its losses have dropped considerably compared to last year. Last quarter, Accolade lost $39.6 million, compared to $346 million in 2022.

It should be clearly noted, however, that the larger loss reflected in last year’s report included a $299.7 million goodwill impairment. Excluding this item from expense reporting, Accolade saw its operating losses shrink to $39.6 million from $46.3 million.

Although Accolade has only been reporting revenues publicly since 2020, the growth it has seen in that short time frame has been explosive. In its first-ever quarterly report, Accolade detailed just $30 million in quarterly revenue. Approximately three years later, the company is regularly reporting more than triple that initial revenue each quarter. For the current fiscal year, management projects total revenues of $410-414 million.

Accolade’s growth strategy is to continue building market penetration among employers. According to the most recent investor presentation, management estimates the company’s potential customer base to be around 30,000 businesses. The company also has long-term plans to grow into adjacent markets, including government healthcare plans.

Analysts Are Very Bullish

Analysts are quite bullish on Accolade over the next 12 months. Currently trading at $11.91, the stock has 15 standing price forecasts that range from $14 to $19. This implies an upside of 17.5 percent to 59.5 percent.

The median target price for Accolade is $16.50, an upside of 38.5 percent. It’s interesting to note that all standing price targets suggest considerable upside, and 10 of the 17 analysts covering the stock rate it as a buy.

In spite of its extremely rapid revenue growth, Accolade still trades at 2.4 times its current sales. While high for a healthcare company, this places it at a fairly reasonable multiple when it is analyzed as a high-growth tech company.

This ratio has compressed significantly in the stock’s short lifetime. As recently as 2021, Accolade traded for more than 10 times its contemporary sales.

Accolade also maintains a favorable balance of assets and liabilities that bolsters its value argument. As of the most recent quarter, the company held $348.5 million in current assets and $112.7 million in current liabilities. Accolade does, however, maintain a somewhat high debt-to-equity ratio at 0.62.

Will Transcarent and Healthjoy Disrupt Accolade?

While Accolade is certainly growing rapidly, it is far from the only cloud-based healthcare benefit navigation system. Companies like Healthjoy, Amino and Transcarent could all mount effective challenges to Accoldade’s position. Because it is ultimately a cloud-based software company, Accolade operates in a market with relatively low barriers to entry. As such, it lacks a robust moat that would protect it from near-term competitive pressures.

Despite a large estimated client base, Accolade has offered few specific details regarding its ambitious growth plans. This may prove troublesome for investors, as it’s difficult to guess how effective management’s growth strategy will be without knowing the specifics of that strategy.

On a longer time horizon, Accolade could also be exposed to political risks as a result of expanding government healthcare funding. According to a Gallup poll published early in 2023, a slim majority of Americans still favor government-guaranteed healthcare.

While there is broad support for this healthcare to be provided through traditional, private insurance companies, the implementation of a single-payer solution at some point in the future could be enormously disruptive to companies involved in healthcare logistics.

Is Accolade Stock a Buy?

Accolade is a company that still has an enormous amount of potential room to run. The company currently has around 800 customers, a fraction of its estimated market. Assuming the company can continue to grow its revenues quickly while paring back expenses, the stock could see significant price improvements.

Accolade is also rapidly becoming a target of heavy institutional buying. Over the last 12 months, institutional investors have purchased over $170 million in Accolade shares, compared to sales of just over $50 million.

The current institutional ownership of Accolade is over 75 percent, suggesting a very bullish view about the company on Wall Street.

Despite its potential, Accolade still carries some worrying risks. Competition and an unclear growth strategy are both major concerns to investors.

One of the few details the company has released about its growth plans is its willingness to engage in mergers and acquisitions. These deals may be too capital-intensive for a company that has yet to turn a profit, potentially spoiling the otherwise relatively strong financial footing Accolade stands on.

Overall, Accolade appears to be a decent buy for risk-tolerant investors. Although there is no immediate path to profitability, Accolade’s rapid revenue growth, large potential market and narrowing operating expenses are all major positives for investors.

The company may prove to be a risky buy, but the potential upside is high enough to offset the possible losses. Those buying Accolade may, however, want to keep their positions in the company small at first to balance the relatively high risks associated with this stock.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.