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Is Teladoc Stock a Buy After a Huge Second Quarter?

By Daniel Sparks – Jul 30, 2020 at 6:45AM

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Revenue growth jumped as virtual visits on this company's telehealth platform soared. Can investors still get in on this hot stock?

Investors had high expectations for Teladoc Health (TDOC -2.04%) going into the company's second-quarter update on Wednesday. Shares have surged more than 150% year to date as investors bet that the telehealth specialist would benefit from mass adoption of virtual care during the COVID-19 pandemic.

Based on tech company's strong second-quarter results, it looks like investors were right about Teladoc's strong value proposition as a solution to minimize unnecessary physical interaction with patients and to help mitigate the spread of the coronavirus. The company's revenue growth rate more than doubled compared to the prior quarter and total virtual visits soared.

Here's a closer look at Teladoc Health's strong second-quarter results.

A woman talking virtually with a doctor on a laptop

Image source: Getty Images.

Rapid growth

Teladoc's second-quarter revenue soared 85% year over year to $241 million, propelled by a 203% year-over-year increase in visits. Total visits during the period were 2.8 million.

Revenue for the period blew past analysts' average forecast for revenue of $220.7 million. But the company's adjusted net loss per share of $0.34 was wider than the $0.23 loss analysts were expecting. Importantly, however, the company's loss per share narrowed on a year-over-year basis; Teladoc's adjusted loss per share in the second quarter of 2019 was $0.41. In addition, Teladoc's adjusted earnings before interest, taxes, depreciation, and amortization was $26.3 million, up from $6.3 million in the same quarter last year.

Looking ahead

Perhaps more encouraging than Teladoc's second-quarter results was commentary from management on what it expects for the rest of the year. Strong demand for Teladoc's platform looks like it will persist, even as social restrictions and lockdowns are eased.

"Even as we continue to battle the coronavirus in the U.S. and other hard-hit countries, we are also seeing sustained demand in areas that are no longer considered hotspots. In some states where the curve has flattened, we are still seeing twice as many patient visits as last year," said Teladoc CEO Jason Gorevic. "While COVID-19 has accelerated the virtual care needs of consumers and providers alike, our broad-based momentum in 2020 and beyond is rooted in the satisfaction and trust our partners have in our ability to transform the healthcare experience."

Management's outlook for third-quarter revenue was particularly impressive. The company said it expected revenue to be between $275 million and $285 million, translating to 103% year-over-year growth based on the midpoint of this range. Analysts were expecting third-quarter revenue of $217 million, or 57% growth.

Even more, management is confident enough in the company's growth story that it provided a preliminary outlook for revenue to increase 30% to 40% year over year in 2021.

Buy, sell, or hold?

While Teladoc shares aren't cheap, Wednesday's earnings release shows that the growth stock's premium valuations is well deserved. With total visits up 203% year over year and with management seeing signs that much of this increase in demand can be sustained even in areas where coronavirus growth has tapered off, these appear to be transformational times for Teladoc Health.

For investors willing to endure the significant volatility that is often associated with growth stocks, it may be worth starting a small position in this fast-growing company today.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Teladoc Health. The Motley Fool has a disclosure policy.

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