Teladoc Stock Struggling to Recover

Teladoc (TDOC) is a leading provider of technology for telehealth worldwide. Teladoc provides a platform for enabling virtual care, among other integrated features. The company benefited tremendously from the pandemic; however, the stock has struggled recently. The company has been public since July of 2015.

I am neutral on TDOC stock. (See Analysts’ Top Stocks on TipRanks)

Teladoc: Leader in Virtual Care

Virtual healthcare exploded during the pandemic out of necessity. Patients and doctors were able to connect virtually and solve many health issues, in both physical and mental health. The Teladoc platform experienced a 38x increase in volumes during this time, according to the company.

It is likely that both patients and doctors will continue to demand virtual care once the pandemic subsides, as it solves many difficulties. First, it is useful to those who have mobility issues and could not otherwise make it to an appointment without difficulty. Next, there are many issues that simply do not require an in-person visit and are more conveniently handled virtually. A virtual visit also helps curb the spread of illnesses, whether between patients in the waiting room or between patient and the healthcare providers. Finally, several costs, such as disposable supplies, can be eliminated with virtual care.

Massive Gains, but Profitability Less

Teladoc was growing modestly prior to the pandemic, having gained 32% to $553 million in fiscal 2019. Then, in 2020, revenue mushroomed to $1.1 billion, a 97% increase. Even better, 2021 revenues are expected to grow another 85% to $2 billion. The concerning news is that 2022 growth is expected to slow to a modest 28%.

The other reason for concern is the lack of profitability. With a major catalyst in 2020, one would reasonably expect the company to increase margins. This did not happen. Instead the operating margin dropped from -13% to -38%, for a $418 million operating loss. Over the trailing twelve months this has swelled to a $603 million operating loss on $1.9 billion in revenue.

This has led to speculation that the business model is simply not scalable. On the other hand, the company took the opportunity in 2020 to invest heavily on marketing in order to increase clientele. If the company can monetize this into the future, then there is a chance it can achieve profitability down the line. This is likely several years off, however.

With a forward PS ratio over 8.5, the stock likely has further to fall before fundamentals catch up to the price. This is despite the stock currently trading close to its 52-week low and 66% under the 52-week high. Investors may have been caught up in the pandemic hype and are now seeing some cracks in the business model, along with the concerning valuation.

Wall Street’s Analysis

Turning to Wall Street, analysts give Teladoc a Moderate Buy consensus rating. 11 analysts have Buy ratings and 11 have Hold ratings. Of note, there are no Sell ratings, despite the recent stock struggles.

The average Teladoc price target of $162.45 implies 47% upside from the current price.

Teladoc Takeaway

There is no doubt that virtual healthcare is here to stay. The convenience, cost savings, and health considerations guarantee that patients and healthcare providers will continue to take advantage of it. Teladoc is a leader in this field and has used the pandemic tailwinds to massively increase revenues. Unfortunately, this has not yet led to profitability and the valuation is still quite high. It is likely that the stock still has further to drop, given the heavy downward momentum.

Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.