One Life Healthcare: Not worth the $18 per share Amazon is paying (NASDAQ:ONEM)

1Life Healthcare (NASDAQ: ONEM) was recently acquired by Amazon (AMZN). That’s because Amazon (AMZN) aims to “reinvent healthcare,” according to AMZN Senior Vice President of Amazon Health Services Neil Lindsay.

ONEM is a “…membership-based primary A mission-driven practice of making quality care more affordable, accessible and enjoyable for all through a blend of people-centred design, technology and great teams. ONEM’s Subscription Virtual Care Model Doctor appointments are delivered via the app using video calling.

AMZN believes technology can be used to improve the patient experience in the healthcare sector, and the purchase of 1Life Healthcare includes 188 existing ONEM offices in 29 markets and 767,000 subscribers You can increase your footprint like so:

However, despite the dizzying growth rate of the past five years since its IPO, ONEM has yet to turn a profit. So the big question is whether ONEM is worth the selling price of 13.43, which AMZN was ready to offer it.

Compare ONEM to Seeking Alpha’s “All US Stocks” screener. This includes 2,462 US stocks, the largest on the market.

(Data and prices as of premarket on November 5, 2022)

(The “All US Stocks” list referred to in this article can be found on this Seeking Alpha Screener)

Basic financial soundness of 1Life Healthcare

To get a good foundation for what AMZN was getting, let’s start by assessing the financial health of ONEM’s underlying balance sheet.

Starting with liquidity and solvency, there are no concerns about the company’s ability to meet a worst-case scenario operating environment, and the company’s debt levels are very moderate. .

Having said that, remember that ONEM is in a growth stage and will be readily supported by AMZN’s own financial balance sheet to sustain losses in the long term. However, we are looking at ONEM independent from AMZN.

Next, we’ll look at the ONEM Debt and Debt setup. You can see that this is well structured, independent of short-term debt. That said, given that the company has no earnings to cover its debt, we get a meaningless covered ratio. However, ONEM has a very reasonable liquidity ratio of 2.09 to cover its short-term debt well.

1Life does not pay dividends, so you can ignore the next section.

Finally, the company’s future prospects show consistent strong growth, with a projected three-year revenue growth of 57.38%. But given today’s unprofitable earnings, the company’s earnings improvement and implicit margin improvement metrics are meaningless. Looking at the estimates, ONEM expects him to be profitable in 2025, which is still a long way off.

Therefore, if profitability improves (or rather, losses decrease) over the next three years, assign a score above 50% to margin improvement.

Overall, ONEM received a financial health score of 68.96%. This indicates that ONEM is concerned about the metric.

ONEM will spend 180% of gross profit in 2021 and 250% of TTM’s gross profit on SG&E costs to drive its growth. Profitability turnaround. Prior to 2021, ONEM typically spent 130% to 140% of GP to fund its growth.

Next, compare ONEM to the US market to assess how attractive the current price is.

1Life Healthcare Pricing Attractiveness Rating

Turning our attention to the valuation metrics, we find that ONEM is surprisingly expensive relative to the market, given the company’s valuation for its price and sales. Ranking in the top third of the most expensive stocks in the US market under these metrics shows that AMZN is definitely paying a premium for the acquisition.

(Note that these metrics are based on the current price of $16.90 per share, not Amazon’s $18 per share)

Given that the company is unprofitable and has negative free cash flow, it would not be easy to rank ONEM on these metrics without meaningless results.

Interestingly, ONEM’s price book value is considered to be the US market average of 2.13.

We now attempt to evaluate ONEM and determine the amount of premium AMZN has chosen to pay for the acquisition.

Finding the right way to assess 1Life Healthcare

First, we review a list of some plausible, non-standard metrics to see how the US market values ​​companies to guide ONEM’s valuations.

We also look at the “noisiness” of each metric through the volatility score and its correlation with the P/S metric and overall market capitalization. This will guide us in identifying and creating pricing mechanisms for ONEM.

Once you decide which metric is the most reliable, you are left with a candidate list of metrics. Weight can then be applied by aggregating the variation scores and applying more weight to the “quieter” metric.

However, some of these metrics rely on forward-looking statements, and given the very small number of analysts who cover ONEM, these numbers are not particularly reliable (Seeking Alpha, The coverage is reported to be too low to be meaningful). But this is a metric where ONEM can really show its value and make a case for AMZN to get a bargain purchase.

Additionally, free cash flow and earnings are negative, so these metrics are useless.

So you have to decide how to interpret the remaining results. There are two ways to see this.

1. Take the meaningless metrics, apply a value of $0 to them, and get the fully weighted valuation as $4.87 (73% discount from $18 per share on AMZN) as shown below.

2. Ignore meaningless metrics and take a weighted average of only P/B and P/S metrics. This gives us a valuation of $14.20 (21% off the AMZN price).

Before the rumors of AMZN looking to buy 1Life Healthcare, we have a history advantage. The stock has hovered between $11.19 and $6.22 per share through 2022, supporting the theory that the market isn’t seeing much of a premium. A company done by AMZN, ONEM’s price is well within the estimated valuation above.

Closing remarks

Looking back at the above, it suggests that AMZN overpaid the company based on the US market share price, but Jeff Bezos and his team probably overpaid the company’s current financial performance. I see value here.

With AMZN’s massive financial, technical and human backing, ONEM could well be $18 per share or more under Amazon’s umbrella.

Having said that, it would be irresponsible not to point out that the scope of this analysis is limited to quantitative peer analysis. We look at a company’s financials, but we don’t look for the kind of detail and context you find in a financial statement. Furthermore, the analysis is of the market as a whole and does not consider the specific industry in which the company operates, and rarely analyzes comparisons with peers. Investors should use this analysis as a baseline for their analysis, but should take the time to look at the qualitative aspects of the company to further inform their thoughts.

Author’s Note: The commentary in this article is general in nature and does not take into account your personal situation. The opinions expressed in this article are opinions only and the data referenced is provided by third party sources, including Seeking Alpha and other public sources.

I do not endorse any of the views expressed in this article. All investors should consider that my articles are for profit purposes only and should not be considered exhaustive investment research or advice.