Cathie Wood has consistently offloaded shares of this expansion-focused company. Is it advisable for you to follow suit?
Famed investor Cathie Wood, from Ark Invest, is renowned for backing promising companies when they're experiencing a downturn. As the CEO, she's not afraid to buck the trend, focusing on innovative businesses with promising long-term prospects. Her investment funds are filled with these types of stocks. Wood anticipates a gradual growth period, rather than swift returns.
This trailblazing investor is backing a variety of major companies like Tesla, her primary holding, and smaller organizations such as gene-editing specialist CRISPR Therapeutics. Her investment choices span various industries, as long as there's innovation involved. Many investors monitor Wood's moves, hoping to capitalize on her expertise.
Recently, one of Wood's repeated actions has been to offload shares of a longtime favorite stock, Teladoc Health (TDOC 5.24%). While her flagship Ark Innovation fund and Genomic Revolution fund still hold Teladoc, weighted at 1.3% and 2.35% respectively, she's been decreasing her stake. Should you follow her lead?
Teladoc's early pandemic success
Let's delve into Teladoc Health's telemedicine journey. Early in the pandemic, Teladoc's revenue and visits skyrocketed in triple figures as people opted for virtual medical consultations over traditional appointments. However, when growth tapered off to double-digit growth, and Teladoc's acquisition of chronic care specialist Livongo resulted in non-cash goodwill impairment charges, investors were concerned - and the stock price declined.
The worry was, and remains, that Teladoc is finding it challenging to transform revenue growth into profitability. In recent times, the company has worked diligently to turn the situation around, succeeding in making progress. Teladoc decreased expenses to align them with growth opportunities and also vowed to balance revenue growth with profitability pursuit.
Teladoc has shown improvement on adjusted EBITDA. For example, in the latest quarter, it jumped by 20% to over $63 million. The company's net loss expanded, but that loss included approximately $17 million of restructuring costs - typical of a company in the midst of recovery.
Chronic care driving growth
Moreover, Teladoc's chronic care business has been boosting growth. Chronic care enrollment increased by 9% year on year, and there are positive signs moving forward in this area, as approximately half of Americans suffer from at least one chronic condition.
However, a couple of potential stumbling blocks are currently impacting the share price. First, longtime CEO Jason Gorevic departed in April, and CFO Mala Murthy assumed the role while a permanent replacement is sought. This CEO vacancy presents uncertainty for the company - and investors may be reluctant to invest until a new leader is appointed. In the recent earnings report, Murthy stated that a permanent CEO will be chosen later this year.
Second, the promising mental health segment has disappointed investors, with BetterHelp delivering decreasing revenue in the first quarter. And the company predicts flat to low single-digit growth for the business this year. BetterHelp revenue grew more than 20% in the first quarter of last year, so the decline, even if temporary, is weighing on investor sentiment and stock performance.
Leading telemedicine player
Furthermore, it's crucial to remember that Teladoc is a market leader in its industry, boasting nearly 92 million members and holding over $1 billion in cash reserves. The company has several strengths that could drive its long-term success. And currently, it's trading at its lowest-ever ratio in relation to sales.
TDOC PS Ratio data by YCharts
So, should you buy, sell, or hang on to Teladoc? Unless you're an aggressive investor, it's advisable to hold off on buying this stock at present, and instead wait to see who is appointed as CEO and gain insight into their strategy.
But if you already own shares, you may want to consider reducing your position if you require the funds for another investment - perhaps the reason Cathie Wood has sold shares lately. Otherwise, it's best to keep your position if selling now would result in a loss. Teladoc is in a period of uncertainty at the moment, but it has made strides towards recovery and could triumph over time - making it worth holding on during these transitionary periods.
Wood's decision to decrease her stake in Teladoc Health could be influencing other investors, prompting them to reconsider their own positions in the company. Regardless of Wood's actions, the telemedicine company's financial performance, particularly its improvement in adjusted EBITDA and growth in the chronic care business, should be key considerations for investors interested in the finance and investing sector.
