Dario Health (DRIO) Poised To Inflect Upon Full Launch of National Health Plan

Dario Health (DRIO) Poised To Inflect Upon Full Launch of National Health Plan

Dario Health (DRIO) Poised to Inflect Upon Full Launch of National Health Plan

- Fundamentals: Company positioned to avoid dilutive financing after recent $50M credit facility with OrbiMed

- Catalysts: Company is guiding for a full launch of a large national insurer, by end of June

- Sentiment: Very strong due to Q1 beat, momentum in Sanofi (SNY) relationship, and pending national insurer deal

- Technicals: Outperforming other risk assets with recent break of the 50 DMA

DarioHealth Corp. DRIO has significantly outperformed other risk assets since the last Benzinga article by StoryTrading on May 11 speculated that Dario may be growing at Teladoc’s expense.

The next day on May 12th, 2022 DRIO beat all analyst estimates on both the top and bottom line and the stock took off from a close of $4.57 to a high of $7.69 several days later. Since the report, DRIO has significantly outperformed other risk assets, broke it’s 50 DMA, and subsequently found support on it’s 50 DMA around $5.95 on June 15th. Our StoryTrading community has been following DRIO closely, and our founder Ben Rabizadeh recently interviewed CEO Erez Raphael and provided an update on the stock through the lens of the StoryTrading four pillars: Fundamentals, Catalysts, Sentiment, and Technicals.

Overview

DRIO provides digital therapeutics solutions that monitor conditions, including diabetes, hypertension, weight management, musculoskeletal and behavioral health. The company started with a diabetes offering in 2016 and has expanded more recently through M&A. 

DRIO has 61 clients that include employers, health plans/insurers, health providers, and strategic partners. These clients contribute approximately 248,000 users to its platform. 

Fundamentals

DRIO reported first-quarter GAAP EPS of -$0.74, which beat analysts’ expectation by $0.22. At the same time, the company reported first-quarter 2022 revenue rose 123.9% to $8.06 million, which beat analysts’ estimates by $1.19 million. The EPS and revenue beat estimates from all seven analysts covering the stock.

The company said during its first-quarter call that its “contract value” is worth $42 million. This excludes the planned phase two expansion of the national insurer (see ‘catalysts’ below) which the company noted is ahead of schedule. 

The company reported total cash and cash equivalents of $55.6 million as of March 31, 2022 and stated it could be cash flow positive by Q1 2024. At the time of the Q1 report, certain financial models predicted that DRIO may need to raise another $35 million in capital but CEO Erez Raphael has expressed an aversion to any dilutive financing at current market prices. Accordingly, on June 9th, DRIO secured a non-dilutive credit facility of $50M with OrbiMed. DRIO now has enough capital to reach it’s cash-flow positive aspirations by the end of Q1 2024. This significant event de-risks DRIO as an investment in the current market environment. Catalysts

The most consequential and exciting catalyst awaiting DRIO, is the long-advertised phase two launch of a national insurer. During the Q1 report, management noted several times that the phase two launch should happen in Q2, which ends on June 30th. On the Q1 call, management started that the contract would give access to tens of millions of customers and could bring in eight figures of revenue to the company in 2023. In a subsequent phonecall, management stated that this relationship could ultimately bring in over $100M in annual revenue to the company. Needless to say, an announcement of such a relationship would represent an inflection point for the company and could significantly drive stock performance.

In addition to this anticipated deal, DRIO also recently announced two new contracts to provide digital therapeutics solutions to a national employer and a provider, both of which are expected to begin enrolling members in the third quarter of 2022.

Sentiment

Sentiment for DRIO is currently very high due to the Q1 beat while competitors like TDOC are facing challenges. Market sentiment however is challenging in an environment which is not good for growth stocks. Management credibility is one of the most important factors for sentiment and CEO Erez Raphael, has generally delivered on all his promises (even if sometimes on a delayed schedule). Also, the company has been very careful with it’s cap table, pulling off excellent prior financing deals (generally above market pricing and with no warrants) which other microcap companies would be envious of. These factors generally support positive sentiment which can result in market pricing at a premium as the company continues to deliver.

Technicals

DRIO recently broke the 50-day moving average and held that level on a challenge on June 15th. StoryTrading collaborates with technical analyst ‘Rexman’ for his unique charts and analysis as follows:

“DRIO this all-time chart shows a long-term flag breakout, at the circle, in August of 2020. The almost 2-year Rally and Retrace, since the breakout, has produced a long-term Head and Shoulders pattern, as shown by The Three Blue lines. In a case of a bullish reversal depending on market conditions, this can run up to till low 9s 'shoulder resistance'. Imo. There are (weak) supports at the upper 4s/low 5s. If the sell-off extends past that, then this may trend down over time, to test all-time lows (dot). And I do expect it to come back up big, if it does test the all-time lows. Because the all-time chart is a Bull flag Breakout still.” You can follow Rexman on Twitter here.

Summary 

The StoryTrading community empowers individuals to make the best-informed trade and investment decisions through a holistic view of stocks based on the four pillars of Fundamentals, Catalysts, Sentiment, and Technicals. Analyzing all four pillars together can also help identify key inflection points.

DRIO’s fundamentals are strong with a solid balance sheet, enough capital to reach profitability, and a game-changing insurer deal expected any day which can inflect the company to future profitability. Combined with positive sentiment, DRIO is poised for further out-performance. Technicals can be used as a guide to sell at resistance levels once the good news hits. 

But will this deal be announced on time as promised or at all? We can’t know for sure yet. If it is announced, how far can the stock go? That's for you and the rest of the market to determine. We'll be here to tell the story as events develop!

Disclaimer: The Author has a LONG position in DRIO.

Posted In: contributorsTrading Ideas