Shares of Teladoc Health (TDOC -1.67%) have been on a tear, up more than 400% over the past three years and even bucking the steep coronavirus-fueled market sell-off during the final week of February. Driving this surge most recently was a fourth-quarter 2019 report that showed revenue up by 27%, to $156.5 million. EBITDA (earnings before interest, tax, depreciation, and amortization) losses of $5.70 million were an improvement compared with an $8.28 million loss in the same period of 2018.
I've owned Teladoc for a few years now. I was initially attracted to the stock after its 2015 initial public offering (IPO) because of its strategy for delivering healthcare services remotely. Per my usual cautious investing strategy, I followed the company and ended up waiting two years post-IPO before making my initial purchase, but it's been a rewarding run so far.
However, this most recent surge in share price -- a 22% gain in a month -- is something else entirely. Teladoc remains one of my favorite stocks for the next decade, but even with a rosy outlook for 2020, current prices are looking a bit frothy.
Image source: Getty Images.
What's all the fuss about?
Teladoc had a great 2019. Helped by the acquisition of peers Advance Medical and MedecinDirect, Teladoc saw full-year revenue rise by 32% (or 24% excluding the two acquisitions), driven by a 32% increase in fees paid for access to its healthcare professional network and a 34% increase in patient visit fees. EBITDA losses for the full year did increase slightly, although those began to narrow in Q4 as mentioned above. For 2020, management said they see revenue increasing another 26% to 28% -- helped by another acquisition made in January -- and EBITDA losses narrowing again to between $5 million and $15 million.
|
Metric |
Full-Year 2019 |
Full-Year 2018 |
Change |
|---|---|---|---|
|
Revenue |
$553 million |
$418 million |
32% |
|
EBITDA gain (loss) |
($41.5 million) |
($35.3 million) |
N/A |
Data source: Teladoc Health.
Besides the general optimism surrounding the improving financials, investors have likely been flocking to the stock because they think remote healthcare could get a boost from the fear over the COVID-19 coronavirus outbreak that has gripped the world. In fact, Teladoc's total patient visits increased by 57% in 2019 -- although those figures predate any increase related to the coronavirus. Nevertheless, whatever the reason investors have decided to pile into the stock, Teladoc illustrates the rapid rate of adoption of remote healthcare.
A great growth story in the making, but with a premium price tag
If the numbers weren't enough, it's telling that even Amazon (AMZN -1.71%) started up a remote healthcare segment last year, which it's piloting with its own employees living in and around the Seattle area. Telemedicine is clearly going places in the world of healthcare, and Teladoc is the leader in the small but burgeoning space.
My only concern at the moment is the price tag. Since there are currently no profits as the company remains in high-growth mode, investors are left with the price-to-sales ratio to make a judgment. At 16.4 times trailing 12-month sales (market cap of $9.08 billion divided by sales of $553 million) and 12.9 times forward sales (market cap divided by the midpoint of expected 2020 revenue of $702.5 million), shares look like they're on the pricey end of the spectrum to me. It's not like Teladoc hasn't been here before, but the stock is probably due for a cool-off -- regardless of a bump in revenue from coronavirus, normal flu season, or any other illness.
Data by YCharts.
What I'm saying is that, while I'm not selling any of my stake in the company, I'm not interested in trying to chase the stock's most recent run higher. I think the future looks bright at Teladoc, and my plan is to hold for the next decade or more, but I'm on hold when it comes to adding to my current position until some of the premium comes off the table -- either via lower share prices or with actual realized revenue growth catching up with the valuation.
