Signify Health (NYSE: SGFY) has seen its share price jump on Monday morning after reported acquisition interest from Amazon (NASDAQ: AMZN). The stock price has climbed by more than 35% after Bloomberg reported that the online retail giant has joined UnitedHealth (NYSE: UNH) and CVS Group (NYSE: CVS) in the bidding process, with the highest price offered understood to be around $30 per share.
But is now a good time to invest in Signify Health stock?
What is Signify Health?
Signify Health operates a healthcare platform that utilizes analytics, technology and healthcare provider networks in the United States. The company operates through Home & Community Services and Episodes of Care Services segments.
The Home & Community Services segment offers health evaluations performed within the patient’s home or at a healthcare provider facility primarily to Medicare Advantage health plans, as well as diagnostic screening, other ancillary services and services to address healthcare concerns related to social determinants of health.
The Episodes of Care Services segment provides services to enhance the healthcare delivery through developing and managing episodic payment programs in partnership with healthcare providers under the Bundled Payment for Care Improvement Advanced program with Centers for Medicare and Medicaid Services and care management services.
Signify Health was founded in 2017 and is headquartered in Dallas, Texas.
How Does Signify Health Make Money?
The company serves health plans, governments, employers, health systems and physician groups.
Signify’s primary revenue stream is through its Home & Community Services segment, which returned $206.7m in the most recent quarterly update. Among this segment’s primary functions is engaging health plan members at home to provide services such as diabetic eye exams, peripheral artery disease testing, bone density testing, and lab collection.
The business’ smaller Episodes of Care Services segment returned revenue of $38.6m across the same period.
SGFY Stock Financials
The company’s second quarter earnings, which were released in the first week of August, showed the business achieved revenue of $246.2m, an increase of 16% from second quarter 2021.
Signify said this quarterly record revenue was attributable to an increase in in-home evaluation volume, which grew to approximately 624,000 in the second quarter from approximately 497,000 in the comparable period.
Even so, net loss came in at $490.0m, compared to $0.1m in the second quarter of 2021. However, this included a $519.9m loss on impairment related to the wind down of the Episodes of Care Services segment.
Over the past year SGFY stock has traded between $29.88 and $10.70. Across the year to date the stock is up by 89.03% at the time of writing, while the S&P500 is down by 13.32%.
The 12 analysts cited by the Wall Street Journal have a consensus Underweight rating on SGFY stock.
SGFY Investment Risks
As we have seen recently with Elon Musk’s efforts to scramble out of a takeover of Twitter (NASDAQ: TWTR), even a confirmed bid is no guarantee that a sale is going to go through smoothly. The likes of Amazon and UnitedHealth are reported to be bidding on the business, but this could be met with any number of difficulties.
As such, the primary risk is simply that no sale goes ahead or that a sale becomes long and drawn out. If either of these situations occur, shareholders will fail to benefit from the premium that the various bidders have offered to pay in order to take over the business.
Most investors currently buying up SGFY stock will be doing so in response to the reports of Amazon and other companies engaging in a bit of a bidding war. If this fails to materialise, these disappointed investors are likely to chuck the stock, sending the share price much lower.
Is SGFY Stock a Good Investment?
Signify is in a strong position financially and is not desperately seeking a sale, so the company’s shareholders are already in a strong position. The onus is on the company’s various suitors to produce a strong offer in order to win shareholder approval, and a bidding war could result in very attractive returns for investors.
However, it would be a mistake to assume that a takeover is a certainty. Deals can collapse at very late stages, so the current bidding war is far from confirmation of a takeover.
Additionally, share prices can be volatile when takeovers are on the cards. Rumours of disagreements and fallings out could send share prices lower, while a collapsed deal can be disastrous for investors.
That being said, Signify Health looks like an attractive investment aside from the takeover talk. The company has a well-performing Home and Community Services segment which is delivering impressive growth, while cash reserves are strong. However, the takeover excitement appears to have elevated the share price to the point that it is overpriced.