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Is Teladoc Stock a Buy?

By Prosper Junior Bakiny - May 1, 2020 at 7:24AM

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Teladoc has outperformed the market so far this year, but can the company maintain its momentum?

Teladoc Health (TDOC 0.00%) has been one of the big winners of the recent market crash. The company's stock is up by 97% year to date, while the S&P 500 is down by 10% over the same period. However, Teladoc sports rich valuation metrics: The company is currently trading at 17.1 times future sales. And given that Teladoc is not consistently profitable yet, some might think that it isn't worth buying. But I believe Teladoc will continue to handily outpace the broader market moving forward, which makes it more than worth a look. Here's why Teladoc is a strong buy.

Business is booming amid the crisis 

In March, Teladoc reported that it was experiencing "unprecedented daily visit volume" because of the ongoing COVID-19 pandemic. This development was hardly surprising. Despite strict social distancing measures the government was forced to impose to mitigate the spread of the disease, patients are still in need of medical attention. Telehealth services providers such as Teladoc allow patients to receive some medical care from their homes. 

A nurse looking at a tablet

Image source: Getty Images.

As such, non-COVID-19 patients can avoid being in close proximity with COVID-19 patients, and hospitals can focus their resources on helping those who have fallen ill with the potentially deadly disease. And even though several states are currently looking to ease social distancing measures, we don't know when we will have the pandemic under control. In other words, it seems likely that Teladoc's services will continue to be in high demand. 

The company makes its revenue by charging fees to insurance companies that offer telehealth services to their clients as part of their policies. Teladoc also charges per-visit fees to those who aren't covered by insurance. The significant rise in demand for the company's services will boost its top line. Teladoc recently announced its financial results for its first quarter, reporting revenue of $180.8 million. The company's total quarterly visits also increased by 92% to 2 million. Note that Teladoc had previously said it expected its revenue for the first quarter to be between $169 million and $172 million.

The long-term thesis for Teladoc remains intact 

Even putting aside recent developments, Teladoc's long-term prospects are strong; here are two reasons why. First, Teladoc has only begun to tap into its potential market. The company estimates that its current base of customers makes up about 1% of the 1.1 billion potential customers management sees within its addressable market.

Of course, Teladoc probably isn't the only company looking to tap into this market, which brings us to the second point: Teladoc has already shown its ability to grow its customer base, as well as its revenue, rapidly. Between 2016 and 2019, Teladoc's number of visits grew at a compound annual growth rate (CAGR) of more than 60%, as did the company's revenue.

In other words, Teladoc will be one of the winners as consumers increasingly seek the convenience of telehealth services, and the company will continue to add customers -- and expand its top line -- at a good clip. 

Don't miss out on this opportunity

Teladoc's valuation metrics might be high, but in my view, the company's prospects aren't fully factored into its stock price just yet. Teladoc still has a lot of room to grow, and as the company continues to add customers, its revenue will continue to increase rapidly. As a result, Teladoc's stock -- which has easily outperformed the broader market since its 2015 IPO -- should continue on its dazzling upward trajectory. In short, investors would do well to buy shares of this healthcare stock right now. 

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