I'm continuing to use my cheap growing companies screen as inspiration for Stock Pitch articles. Looking through the screen results, another platform business stands out as being particularly cheap on historical measures, with an EV/EBITDA below three. Kooth (LON:KOO) has appeared undervalued for a while (its three brokers rate it a Buy, with price targets from 250p to 330p, against a current share price of 132p), so I own shares in the company. But perhaps I'm missing something. A Stock Pitch article is a great way to get to the heart of the matter.
[Disclosure: At the time of publication, I hold a long position in Kooth.]
The Pitch
Kooth is a UK-headquartered provider of digital mental health services, founded in 2000 and listed on the AIM market in September 2020. Its StockRank is a relatively modest 65, held back by a middling Value Rank of 49. Despite this, the stock looks cheap on earnings measures, just that the algorithms are picking up the lack of yield and the relatively high Price to Book. However, these don't look out of place for a platform business looking to scale, suggesting this is a company that punches above its Stock Rank.
It operates two distinct but complementary platforms:
- In the UK, Kooth.com and Qwell.io are commissioned by NHS England, local authorities, and increasingly by bodies such as the Department for Work and Pensions, providing free, moderated, clinically accredited mental health support to children, young people, and adults. Kooth is the longest-standing digital mental health provider to hold UK-wide accreditation from the British Association for Counselling and Psychotherapy.
- In the US, Soluna is a youth-focused digital mental health platform commissioned by state governments, currently operational in California, New Jersey, and Michigan.
The cornerstone of the business is a very large four-year Californian contract awarded in July 2023 to provide digital mental health services to teenagers and young adults. The unsuccessful bidders were not revealed but are widely believed to include at least two large US healthcare providers. For a plucky Brit to win out in the US over large-scale local opposition is a rare feat.
The implementation of their Soluna platform, which went live in the Golden State in January 2024, was transformational for the business, leading to revenue roughly…
