LifeMD, Inc. (LFMD) is a direct-to-patient telehealth platform that enables virtual primary and lifestyle health care via five separate brands, as well as the home delivery of prescription medications, devices and other accessories.
The stock surged during the pandemic as telehealth became a huge winner in 2020, as demand exploded. The company quickly struggled with operating expenses in 2021 and had to raise significant additional capital and dilute shareholders. The year 2022 was a "get right" year for LifeMD as it started to right the ship.
I initially took a small stake in a couple of months ago as the company seemed like it might turn into a decent turnaround opportunity after destroying a ton of shareholder value in 2021. Management appeared to be gaining traction as the shares seemed to have a compelling risk/reward profile if leadership could continue to make progress. The stock also saw some insider buying in the first half of June that caught my eye. More proof of the company's turnaround become apparent this week when LifeMD reported second-quarter numbers and as a result I have upped my holdings via some covered call orders this week.
LifeMD had one of the best quarters among my small cap holdings this earnings season. The company had a profit of a nickel a share as revenues rose nearly 18% on a year-over-year basis. Importantly, LifeMD achieved positive free cash flow sooner than the company had previously guided. Active telehealth subscribers rose 15% from the same period a year ago to nearly 200,000. In addition, its recently launched weight management program came out of the gate much faster than expected, quickly adding 5,000 paying subscribers. As a result, leadership now believes this new business line will be accretive to earnings in fiscal 2024.
Finally, the company bumped up its full year revenue guidance to between $146 million to $152 million. A couple of analyst firms have reissued Buy ratings on the stock since quarterly results posted and I expect more to do so in the week ahead. The shares certainly aren't expensive at one-times forward revenues, and the company is expected to have just over 20% sales growth in fiscal 2023 and in the high teens in fiscal 2024. At its peak, LFMD traded north of seven times forward revenues.
Option Strategy:
Here is how I added to my LFMD holdings Friday, using a covered call strategy. Selecting the February $5 call strikes, fashion a covered call order with a net debit in the $3.50 to $3.60 a share range (net stock price - option premium). This strategy provides downside protection of nearly 20%. This strategy also has just north of 35% potential upside if the stock drifts up to the $5 level during the option duration. This seems entirely possible. Personally, I would be just fine with the shares being range bound between $4 and $5 as that would give me the opportunity to "roll" over the options every six months or so.
