While both the S&P 500 Index ($SPX) and Nasdaq Composite ($NASX) posted new record highs on Friday, Teladoc Health (TDOC) shares fell to their all-time lows. Nothing much has gone right for the telehealth stock, and it is now down over 57% for the year.
Teladoc shares peaked above $300 in February 2021, and have been sliding ever since. The stock fell 74% in 2022 amid broad-based selling in U.S. markets. However, even as markets rebounded in 2023, and continued their winning streak in H1 2024, Teladoc Health stock has been stuck in the red.
Even Cathie Wood – whose Ark Invest was once TDOC’s biggest shareholder – has sold some Teladoc shares. What’s the forecast for Teladoc Health stock, and can the struggling company recover in 2025? We’ll discuss in this article.
Teladoc Health Struggles with Sagging Growth and Perennial Losses
Teladoc Health is struggling with sagging growth and perennial losses. The company’s revenues rose 98% and 85.8% in 2020 and 2021, respectively. By contrast, in 2022, sales growth fell to 18.4%, while last year’s top-line growth was a mere 8.1%.
Analysts expect Teladoc Health’s revenues to rise 2.2% in 2024 and 3.6% in 2025. The company’s revenue growth is now down to low single digits, while it continues to post perennial losses, with analysts modeling a net loss of nearly $185 million in 2024.
The telehealth sector – which rose to prominence during the COVID-19 pandemic – hasn’t lived up to the high expectations that investors had set between 2020-2021. Notably, Walmart (WMT) and UnitedHealth Group (UNH) have both exited the telehealth sector as they try to cut down on money-losing businesses.
Teladoc Health Looks Undervalued - But Is It Really?
That the telehealth sector and TDOC are going through a tumultuous period is no secret. But is TDOC stock a buy despite all the headwinds?
From a valuation perspective, the stock might appear attractive, and trades at a next 12 months (NTM) price-to-sales multiple of 0.77x and NTM enterprise value-to-earnings before interest, tax, depreciation, and amortization (EV-to-EBITDA) multiple of 5.36x.
While we don’t have Teladoc Health's price-to-earnings multiple, as the company is posting losses, it does generate decent cash flows, and expects to generate between $210 million to $240 million in free cash flows in 2024. Given the company’s market cap of nearly $1.6 billion, we get a market cap to free cash flow multiple of 6.4x, at the upper end of the guidance.
That multiple might look tempting, but it should be read with a pinch of salt. Last year, the company’s stock-based compensation was $201.6 million - which, for context, was around 7.7% of its sales and more than the free cash flows it generated during the year. In Q1 2024, half of its net loss was attributable to stock-based compensation. Put differently, if Teladoc Health replaced the stock-based compensation with cash bonuses/incentives, its free cash flows would fizzle away. While it's customary for companies to retain talent with stock-based compensation, I find the magnitude a bit too high in TDOC's case.
Overall, while TDOC’s valuations are on the lower side, they're low for a reason.
At the same time, the company is currently undergoing a transition as it settles to a lower growth base. As part of that process, Teladoc Health replaced its longtime CEO Jason Gorevic with Charles “Chuck” Divita III, who took over the position just last month.
Teladoc Health Maintains Its Long-Term Outlook
During the Q1 earnings call, Teladoc Health maintained the long-term outlook that it provided during the previous earnings call. It expects revenues to rise in the low to mid-single digits annually over the next three years, while forecasting margins to expand between 50-100 basis points annually over the period. The company forecasts that its 2025 adjusted EBITDA will be at least $425 million.
Simultaneously, Teladoc Health is also working on GAAP profitability, including through cost cuts, and expects stock-based compensation to fall over the next three years.
I believe that while the telehealth sector has failed to live up to the hype, there is a genuine need for the industry - and with its member base of over 90 million, Teladoc Health has a lot of cross-sell opportunities. Chronic care and weight management could be the next growth drivers for the company, along with international expansion.
TDOC Stock Forecast: Analysts See Massive Upside
Wall Street analysts see a massive upside in TDOC stock, and its mean target price of $16.82 is 82.6% higher than Friday’s closing prices. The stock even trades below its Street-low target price of $10, while the Street-high target price of $25 is more than 170% north.
Analysts’ target prices should be read with a caveat, as brokerages have been gradually lowering TDOC's price target. Teladoc has failed to enthuse with its financial performance, and analysts have lowered their target prices following the earnings reports.
As we head into the Q2 confessional, Teladoc Health has its task cut out for it. The company needs to not only grow its top line at a moderate pace, but also cut down on its losses, including on account of the hefty stock-based compensation.
All of that said, if the company can deliver on the three-year outlook that it provided earlier this year, TDOC could not only recover from the current slump, but also generate stellar returns for investors, given its low valuations - which don’t seem to bake in anything positive about the company.
On the date of publication, Mohit Oberoi had a position in: TDOC . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
