Agilon Health Stock Up 4% in November – Time to Buy AGL Stock?

The price of Agilon Health stock has advanced 4% so far in November while shares are surging more than 4% in pre-market stock trading today after a few events seem to have prompted a short-term recovery after the pronounced downtrend that started in September this year.

On 28 October, the firm reported its financial results covering the third quarter of 2021 with sales jumping 47% compared to a year ago at $459 million while memberships experienced an 83% year-on-year jump.

Meanwhile, net losses landed at $36 million compared to $12 million it lost during the same period in 2020 while net losses per share landed at $0.09.

Despite missing analysts’ forecasts for both revenues and earnings, market participants reacted positively to the management’s decision to raise its guidance for both revenues and memberships for the entire fiscal year.

Moreover, in an investor presentation released this month, the firm outlined an ambitious goal for its membership growth in 2022 as it expects to post a 40% jump to a total of 260,000 affiliated members – up from a forecasted figure of 186,000 by the end of 2021.

Can these positive announcements support a trend reversal for Agilon Health stock or is this a brief pause after the sharp downtrend the stock recently experienced? In this article, I’ll attempt to answer that question upon assessing the price action and fundamentals of AGL stock.

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Agilon Health Stock – Technical Analysis

Back in September this year, the price of Agilon started to dive after the company announced that it was selling 17 million shares along with a 30-day option granted to underwriters to sell another 2.5 million shares.

These shares were sold on behalf of existing stockholders including directors and officers whose lock-up period was waived by the book-runners of Agilon’s IPO.

This figure represented around 4.5% of the company’s weighted average shares outstanding based on Agilon’s Q2 earnings report. Selling that many shares had a negative impact on the stock price considering that average trading volumes for the stock ranged 300,000 and 600,000 shares exchanged per day.

In October, trading volumes increased to an extent that may indicate that the share sale has been completed and that may reduce the selling pressure for Agilon Health stock moving forward.

For now, even though momentum indicators have been recovering from the depths they reached last month, the price needs to jump above the 50-day simple moving average to confirm a full-blown trend reversal.

Agilon Health Stock – Fundamental Analysis

Even though Agilon’s revenues have been steadily increasing, the firm’s unclear path to profitability continues to be a concerning factor amid the thin gross margins that the company continues to report.

In this regard, for the nine months ended on 30 September 2021, Agilon’s gross margins stood at 5.1% compared to 11% the firm reported during the same period of 2020. Meanwhile, even though its membership base has kept growing, the rate at which new members are being enrolled is decelerating on a year-on-year basis.

In the past nine months, the firm’s cash burn accelerated compared to a year ago to around $102 million. Even though the company has a sizable war chest of around $1.08 billion, this cash burn may force the business to raise more money down the line as the business model has not proven that it can scale up profitably. In fact, the figures show the exact opposite as net losses have accelerated despite sales growing at a fast pace.

At its current market capitalization of $10 billion, the company is trading at 5.5 times its forecasted sales for the full 2021 fiscal year while it is expected to report a negative adjusted EBITDA figure of around $40 million by the end of this year.

As I stated in a previous article about Agilon, the company’s inability to prove that it can scale up its business model profitably thus far, the current valuation seems quite stretched and that creates room for further declines in the price of AGL stock down the line.

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