Since the coronavirus-induced bear market, there aren't too many stocks that haven't been mauled. While the broader markets have recovered some of the losses that began in mid-February, they're still down significantly: The Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite are down 19%, 18%, and 17%, respectively.
One notable exception so far this year has been Teladoc Health (TDOC 3.08%). The cloud-based telehealth specialist has moved in the opposite direction of the major markets, gaining more than 74% since the beginning of the year, and up 24% since the bear-market decline began on Feb. 19.
This has many investors asking the same question: With gains like that and so much growth baked into the stock price, should investors consider adding Teladoc right now?
Image source: Getty Images.
An indispensable coronavirus tool
While the virtual healthcare services company was already seeing significant adoption before the pandemic struck, Teladoc's business has soared in recent weeks and months. Patients have been reluctant to make the trek to the doctor's office for fear of contracting the coronavirus, and as a consequence have been turning to telehealth solutions (video chats with doctors). And no company is more widely accepted than Teladoc.
To put that into perspective, Teladoc announced in mid-March that over the course of one week, its daily virtual medical visits soared 50% compared with the prior week. What made that metric even more astounding is before that, the platform had already been experiencing demand consistent with peak flu volumes. Then, on Wednesday of that week, visits accelerated to as many as 15,000 per day, and to over 100,000 in one week's time.
Part of the reason for the surge in demand was guidance issued by both the Centers for Disease Control and the Food and Drug Administration recommending more doctors and patients adopt telemedicine services to help slow the spread of the coronavirus.
This all helps explain why Teladoc's stock has been on fire, but that said, is it still a buy? Let's see what recent results reveal.
Recent results and other important metrics
While coronavirus headlines have certainly added fuel to the fire, that's not the only thing propelling Teladoc's stock higher. The company reported fourth-quarter revenue in late February that soared past expectations, sending the stock up more than 15% on the day following the report.
Revenue grew 27% year over year, to $157 million, and the loss per share of $0.26 was much improved from the loss per share of $0.35 in the prior-year quarter. To put that into the context of Wall Street's expectations, analysts' consensus estimates were calling for revenue of $152.95 million and a loss per share of $0.33.
It wasn't just the financial metrics that gave investors reason for optimism. Teladoc's total office visits climbed 44% year over year to 1.24 million, easily topping its guidance range of 1.0 million to 1.2 million. The company's subscription-based business model continues to attract patients, as paid membership in the U.S. climbed to 36.7 million, up 61% year over year, while U.S. fee-only visits soared 104% to 19.3 million.
Image source: Getty Images.
In this time of economic uncertainty, it's worth noting Teladoc has a formidable balance sheet, with $517 million in cash and investments. While it also lists $440 million in debt, this comes in the form of convertible senior notes. Most of the debt isn't due until 2025 and will be exchanged for stock on conversion, so it carries little financial risk.
The stock is by no means cheap. As of Thursday's market close, it trades at 15 times forward sales (a ratio between 1 and 2 is considered good), so investors have clearly baked impressive growth into Teladoc's current share price. To give that some color, analysts are expecting sales growth of 35% in the current quarter, 32% for the current year, and 25% next year (though those estimates may not have been updated to reflect the surge in telehealth visits brought on by the pandemic).
On the plus side, CEO Jason Gorevic still owns more than 2% of the company's stock, so his interests are clearly aligned with those of investors.
The competition is out there
While Teladoc is currently the industry leader, it isn't without competition. In a recent regulatory filing, the company listed MDLive, Doctors on Demand, American Well, and Grand Rounds as it biggest competitors. While none of those rivals has achieved the name recognition of Teladoc, the field bears watching.
Another company that could represent a future threat is Amazon.com (AMZN 1.40%). Late last year, the company announced plans to launch Amazon Care, a program that gives employees and their families direct access to doctors or nurses via video chat, allowing them to follow up in person if necessary. That benefit went live in February, and while it's currently just for Amazon employees, the company has been known to develop services in-house, eventually turning them into a revenue stream, like its cloud computing provider Amazon Web Services.
The bottom line
But the seminal question is, "Should you buy Teladoc Health stock right now?" As with so many things, the answer is, "It depends." It's worth noting that I recently added to an existing position, as I believe both the growth story and the opportunity are equally compelling. Once patients have experienced the ease and convenience of telemedicine appointments with their local healthcare professionals, they will likely be loath to go back to the traditional office visit, unless it's absolutely necessary.
If you are an investor who avoids stocks with high valuations, doesn't have the stomach for excessive volatility, or is just looking to book some quick gains, then Teladoc probably isn't the stock for you.
If, on the other hand, you're willing trade a high valuation, the commensurate risk, and a boatload of volatility for the chance at extraordinary gains (and assuming you have an appropriate long-term investing horizon), then Teladoc probably deserves a place in your portfolio.
