Health Catalyst has gotten torched over the last six months - since March 2025, its stock price has dropped 25.5% to $3.30 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Health Catalyst, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Health Catalyst Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than HCAT and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Health Catalyst’s 6% annualized revenue growth over the last three years was weak. This fell short of our benchmark for the software sector.
2. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Health Catalyst’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Health Catalyst’s products and its peers.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Health Catalyst burned through $25.67 million of cash over the last year, and its $171.2 million of debt exceeds the $97.34 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Health Catalyst’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Health Catalyst until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
We see the value of companies addressing major business pain points, but in the case of Health Catalyst, we’re out. Following the recent decline, the stock trades at 0.7× forward price-to-sales (or $3.30 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Like More Than Health Catalyst
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