Baron Growth Fund recently published its third-quarter commentary – a copy of which can be downloaded here. During the third quarter of 2020, the Baron Growth Fund returned 10.95% (institutional shares). In comparison, the benchmark S&P 500 Index was up 8.93%, while the Russell 2000 Growth Index was up 7.16%. You should check out Baron Growth Fund’s top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.
In the Q3 2020 Investor Letter, Baron Growth Fund highlighted a few stocks and American Well Corp (NYSE:AMWL) is one of them. American Well Corp (NYSE:AMWL) is an healthcare company. In the last one month, American Well Corp (NYSE:AMWL) stock gained 8.3% and on December 7th it had a closing price of $28.98. Here is what Baron Growth Fund said:
“We participated in the September IPO of AmWell, an innovative digital health care platform vendor. AmWell was founded, and continues to be managed by, two Israeli brothers who are both doctors and successful serial entrepreneurs. AmWell’s flagship offering is a white-label telehealth solution that allows hospitals, health systems, and health plan customers to offer virtual care to patients under their own brands. AmWell compliments its technology platform by offering direct-to-consumer telehealth appointments on a fee-for-service basis, including primary and urgent care, behavioral health, and other specialties.
We believe that telemedicine conveys benefits to the entire health care ecosystem. Virtual care improves convenience for patients, enhances the safety of visits, helps providers balance supply and demand, allows for more integrated care across specialties and locations, and is better suited to managing chronic disease. Ultimately, we believe that telehealth will broaden access and reduce the cost of care, which we view as critical national priorities. These benefits are translating into a vast and growing market for telehealth services. We estimate that AmWell serves an addressable market that exceeds $34 billion annually, which we expect to grow as the company expands specialty services, adds additional functionality, and enters international markets.
We view the company’s positioning as a technology platform vendor to be highly differentiated from competitors offering telehealth services. AmWell’s technology enables video and audio interactions; and it integrates clinical and back office workflows across patients, health plans, providers, and hospitals. The platform is fully embedded in third-party platforms such as electronic medical records and patient and provider portals. All telehealth visits are delivered under the provider’s brand rather than AmWell’s, which positions the company as a strategic partner to the industry rather than a direct competitor.
We expect the company to compound revenue at 25% annually as telemedicine becomes more widely utilized. We believe that COVID-19 has been a meaningful accelerant to the industry, as a spike in demand and loosening of regulatory and reimbursement restrictions have highlighted the benefits of telehealth, removed stigmas, and solidified a payment model. We expect AmWell to grow through new customer acquisition and deeper penetration into existing customers. AmWell has already achieved wide adoption, supporting the telehealth platforms at 55 health plans and 150 of the U.S.’ largest health systems, which encompass over 2,000 hospitals. However, it is presently contracted to cover just half of its clients’ 150 million insured lives, providing a long runway for same-store growth. We also expect the release of additional modules, expanding partnerships with innovators like Apple, Cerner, and Philips, expansion into international markets, and selective M&A to add to growth.
The company has built a durable financial model that is designed to scale over the long term. AmWell primarily charges customers a subscription fee, which is presently supplemented by utilization fees for AmWell-delivered surge capacity. We estimate that 85% of revenue is recurring, and customer retention rates are in the mid-90% range. The company is investing aggressively to build out its platform and network of integrations in order to drive growth. This is depressing current margins and cash flows relative to their long-term potential. We view most of these investments as fixed and believe that as telehealth inevitably becomes ubiquitous, the company will own a vast and valuable network with high switching costs, giving AmWell pricing power and dramatic margin expansion potential. We believe profitability can be enhanced by a recently consummated partnership with Google, which purchased $100 million worth of AmWell stock and will serve as the company’s cloud infrastructure provider.”
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