Should Investing in Teladoc Health's Shares be Considered?
Teladoc Health (TDOC, dropping 4.18%) has been grappling with adjusting to evolving trends in the digital healthcare sector. As of now, the stock has plummeted an alarming 57% this year, primarily due to recurrent financial deficits and sluggish growth.
However, in a volatile market with renewed expectations, there might be potential for investors to buy shares of a heavily discounted industry leader. Teladoc's capacity for a turnaround could lead to a significant price surge.
Confronting fierce competition
Teladoc is widely recognized for revolutionizing telemedicine as an innovative solution for users to interact with certified healthcare professionals online. The convenience and cost savings of virtual diagnosis for various health issues have witnessed immense demand, especially during the COVID-19 outbreak as people preferred avoiding public spaces.
Currently, the landscape has changed dramatically with numerous new competitors joining the market, such as large hospitals and healthcare organizations launching their telehealth services. Teladoc also faces stiff competition from emerging digital health start-ups committing to specific medical niches like mental health and weight loss medication. These developments have contributed to a general downturn that explains Teladoc's weakened share value.
Analyzing Teladoc Q3 results
In the third quarter, Teladoc reported a 3% decrease in revenue compared to the previous year, while the EPS loss margin lessened from $0.35 to $0.19. Positively, Teladoc boasts a 94 million paying member count in its core U.S. Integrated Care service, an increase of 4% from the preceding year. Further, the company has experienced success internationally, with a 15% revenue boost from Q3 2023 and representing 16% of its business.
However, there's a noticeable decrease in the total number of paid visits and usage across the platform. Disappointing trends from Teladoc's lucrative "BetterHelp" mental health platform demonstrate a 13% decrease in its 398,000 paying subscribers from 2023.
For the fiscal year, Teladoc projects annual revenue growth in the "low single-digit to mid-single digits," together with an adjusted EBITDA margin falling between 14.9% - 15.3%. This yearly revenue forecast implies a 2024 adjusted EBITDA of roughly $400 million, marking a 20% enhancement over the $328 million earned in 2023, symbolizing cost control efforts.
Having said that, even if the finances are improving, the initial expectations of the year are lagging behind. Teladoc closed Q3 with $1.2 billion in cash and cash equivalents versus $1.5 billion in total debt, backed by a positive operating cash flow.
Awaiting rebounding growth
The issue with Teladoc lies beyond the short-term financial results, as its position as an industry leader appears to be weaker due to a loss of competitive advantage or "economic moat." With telehealth platforms becoming increasingly common, other major companies like Amazon and CVS Health provide alternative consumer-facing solutions, resulting in cheaper prices that may impact profits over time. Teladoc has also failed to keep pace with specialized players like Hims & Hers Health and Talkspace, generating stronger growth.
The uncertainty surrounding Teladoc might justify a heavily discounted valuation. The shares currently trade at a forward price-to-sales (P/S) ratio of just 0.6, equivalent to negative earnings and the subdued growth projections. In contrast, larger P/S ratios are held by Hims & Hers and Talkspace, capturing market share at Teladoc's expense.
Conclusion on Teladoc stock
In summary, I think investors should steer clear of Teladoc stock. The absence of evidence indicating substantial sales rebound and the Betterhelp segment's recovery mean the stock will likely remain unstable. Ultimately, investors may find better prospects in other segments of the market.
Despite the current financial struggles and intensifying competition, there's an opportunity for savvy investors to consider investing in Teladoc's shares if they believe in its potential turnaround. Given the company's strong member base and international growth, a strategic move to improve its competitive edge could significantly boost its share price.
Considering the current state of the finance market, if an investor perceives that Teladoc is undervalued due to its weakened share value, they might consider allocating some of their money to purchase Teladoc stocks, speculating on the company's future success. However, thorough research and financial analysis are essential before making any investment decisions, given the uncertainties surrounding the finance sector.
