Despite the sharp rise in broader U.S. equity markets in 2023, Teladoc Health (TDOC) shares have sagged and are down more than 7% for the year. The stock is now hovering near its 52-week lows, extending its dismal performance of the last couple of years. TDOC peaked at around $295 in February 2021, and has been sliding ever since – including a 74% fall in 2022.
To be sure, it wouldn't be prudent to single out the shares on this basis alone, as many other former “stay-at-home” winners from the COVID-19 era peaked at around the same time and have since fallen significantly. Growth stocks – especially the perennially loss-making names, like Teladoc Health – have had a horrid run over the last couple of years as the Fed has consistently hiked rates, and many now trade at a fraction of their all-time highs.
That said, while Teladoc Health stock is currently out of favor with markets, I believe it makes sense to buy this beaten-down stock. Here's why.
1. The Telehealth Market Holds a Lot of Promise
I believe that the healthcare market hasn’t yet been disrupted by digitization, unlike many other industries. It's no wonder, then, that tech giants like Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT) have all made forays into healthcare.
Market research firm Research Ocean estimates the telehealth market to reach $70.19 billion in 2026, up from $26.4 billion in 2020 – a CAGR of 17.7%. A separate survey conducted by Teladoc Health this year revealed that “three out of every four employers expect to spend more on virtual care over the next three years.” The survey also showed that more than half of the employers were planning to implement a whole-person virtual care strategy – a key focus area for Teladoc Health.
2. Teladoc Health Has Built a Strong Ecosystem
Teladoc Health has built a strong ecosystem of 12,000 clients and around 86 million members. While the membership growth has tapered down, the vast base represents a massive cross-sell opportunity for Teladoc Health. Along with integrated care, Teladoc also offers mental healthcare through its BetterHelp platform – which, incidentally, has better margins.
Weight management services could be another growth driver for TDOC in the coming quarters, along with international operations and global expansion.
3. Teladoc Health’s Growth is Stabilizing
The COVID-19 pandemic helped drive sales of companies like Teladoc Health, and its revenues rose 98% and 85.8% in 2020 and 2021, respectively. Last year, sales growth fell to 18.4%, and analysts expect continuing contraction, with revenue growth estimated at 9.4% in 2023 and 8% in 2024.
While Teladoc Health might not recover to the near triple-digit revenue growth it enjoyed during the pandemic, its growth is nonetheless stabilizing, and I believe there is an upside to these estimates as the company expands internationally and looks for more cross-sell opportunities - plus, expands to a weight-loss segment.
Also, while TDOC is currently posting net losses, analysts expect these deficits to narrow in the coming years.
4. TDOC Looks Undervalued
Notably, despite perennial losses, Teladoc Health boasts of strong cash flows and raised its 2023 free cash flow guidance to $150 million. It also has around $1 billion cash on its balance sheet, which the company counts among its competitive advantages. In fact, during the Q2 2023 earnings call, Teladoc Health’s CEO Jason Gorevic said that some of the clients the company speaks to have concerns about the financial strength and viability of their partners – which is where Teladoc Health stands out, with its strong balance sheet and free cash flow generation.
From a valuation perspective, Teladoc Health trades at an NTM (next-12 months) price-to-sales multiple of 1.32x, which is the cheapest ever – and while they might not rise to the kind of astronomical levels that we saw in 2020 and 2021, the stock nonetheless looks quite cheap at these levels. The NTM enterprise value-to-earnings before interest, tax, depreciation, and amortization of 12.8x also looks quite reasonable.
TDOC Analyst Ratings
Wall Street analysts rate TDOC as a Moderate Buy. Of the 20 analysts covering the stock, 5 rate it as a Strong Buy while 1 calls it a Moderate Buy. The remaining 14 analysts rate the stock as a Hold.
Its mean target price of $31 is 41% above current prices. Incidentally, TDOC trades even below its Street-low target price of $23.
Overall, I believe that a reasonably strong growth outlook, improving financials, and attractive valuations make Teladoc Health stock a good buy at these prices - even as the stock remains out of favor with most investors.
On the date of publication, Mohit Oberoi had a position in: TDOC , AAPL , MSFT , GOOG , AMZN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
