I think we should invest in companies that are making the world a better place. However, we also have to make sure that we don't fall into blind enthusiasm for a company. So here are some risks that come with investing in Livongo:
- Livongo's stock has more than quadrupled since the beginning of the year. (Going from $25.22 to $108.56). The market is currently betting Livongo is a winner. But the moment the company stumbles (or even just the stock loses momentum) there could be a big pullback in share price. You could quickly lose 20% of your investment over a short period of time in an investment like this. Expect volatility.
- Livongo is currently not profitable. This is not unusual for a new company that is growing quickly, but Livongo incurred net loses of $55 million, $33 million, and $16 million in 2019, 2018, and 2017 respectively. Livongo is betting that their health solutions will gain broad market acceptance, and so they are investing heavily into the business. But if they fail to make it big, their stock will get re-priced in a hurry.
- Right now there is an expectation that Livongo will be able to expand beyond diabetes care and into other areas such as hypertension, weight management, and behavior health. If these segments don't materialize then the size of the opportunity will be smaller than expected.
- A breakthrough in treatments for diabetes would render Livongo's services less important. I'm always rooting for progress and cures- so if this were to happen, I would happily take the loss. But it is a good reminder that good developments can also make your investments go down.
Ultimately, I believe if your time horizon is 5 years or more, Livongo is a good bet. In the short run it could be a bumpy ride, but at the rate Livongo is singing up new clients and members, this looks like a company that will be much bigger than it is today 5 years from now.
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