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Livongo Health: Continued Momentum, Margins A Bit Soft

Mar. 08, 2020 6:03 AM ETLivongo Health, Inc. (LVGO)11 Comments


  • Livongo ended 2019 on a very strong note and guides for continued sales momentum.
  • The growth in sales is comforting, yet projected margins for the coming years look a bit soft.
  • I still like the business a lot, given the growth potential and continued forward sales momentum.
  • All of these and apparently a conservative management make me upbeat, although I am not actively adding now.
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Livongo Health (NASDAQ:LVGO) is a name which I have been covering extensively since it went public. My last take on the company was halfway through November when the company posted satisfactory third-quarter results. Fourth-quarter sales momentum remains very strong as the company has outlined a great sales guidance for 2020, although I am far from impressed with the margin guidance for the upcoming year.

The Thesis

I have been attracted to Livongo since it went public as it aims to "treat" chronic diseases through improvements in both technology and data science. The combination of progress on both these fronts results in personalised solutions and treatments, resulting in better health results for the patients. This is very compelling as real improvements can be delivered at relatively low costs in a healthcare system which can be categorised as both expensive and at least at some points as ineffective.

The potential for the company and its solutions is very large, with over half of the US population suffering from chronic health issues, while continued care options are still very limited. Rather than monitoring, patients suffering from chronic conditions typically require guidance and real-time feedback with medical expertise. High net promoter scores, innovative solutions and market potential are what attracted me to the company.

The potential for the company was already priced into the shares when it went public at $28 in July of last year which worked down to a $2.5 billion equity valuation with 89 million shares outstanding, although the valuation fell to $2.2 billion after factoring in the net cash position.

To put this valuation into perspective: the company generated just $31 million in sales in 2017 on which it lost $17 million. Sales growth of 121% was spectacular in 2018, with revenues totalling $68 million although losses doubled to $35 million. By no means these numbers could justify a $2.2

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This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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