With people staying at home as much as possible in this new era of social distancing, Teladoc Health (NYSE:TDOC) is seeing demand for its virtual care services skyrocket. The company is skyrocketing in 2020: Its sales have grown at a rate of 85% this year, while its share price is already up more than 150%.
With those kinds of numbers, investors may be wondering whether it's too late to invest, and if they've missed the boat on this red-hot stock. However, let's take a closer look at how the New York-based company has done this year, whether it can continue its impressive growth, and if the stock is still a good buy.
Is Teladoc's growth due to slow down?
In Teladoc's second-quarter results, released July 29, revenue soared to $241 million, up from $130.3 million in the prior-year period. When it released its first-quarter results back in April, Teladoc was projecting second-quarter to reach a high of only $225 million. It also projected total virtual visits to reach up to 2.4 million. The company blew through those numbers, notching 2.8 million total visits during Q2. U.S. paid memberships of 51.5 million at the end of the quarter were also better than the 49 million to 50 million Teladoc was expecting.
However, the company isn't getting its hopes up for the third quarter, especially with many states no longer under lockdown. It estimates that its quarterly visits will drop to between 2.5 million and 2.7 million. And while it's expecting sales to rise as high as $285 million, that would be a quarter-over-quarter increase of 18% -- nowhere near the 33% jump it took from Q1 to Q2.
On its own, Teladoc's growth rate will likely decline simply because it's hard to keep growing sales at a high rate, especially as the business gets bigger and bigger. And over the long term, once the pandemic's over and people go back to visiting their doctors in person, there's a potential for a drop-off in the number of users making virtual visits through Teladoc's platform. That could also drag down the company's growth rate over time. But with Teladoc's recent wheeling and dealing, the company's growth rate may actually accelerate in the near future.
Mergers and acquisitions could unlock much more potential
On July 1, Teladoc completed its acquisition of telehealth company InTouch Health.
The key benefit for Teladoc is the ability to take advantage of InTouch's network. InTouch has partnered with more than 14,500 physicians around the world and 4500-plus hospitals and health systems. As of the end of 2019, Teladoc was serving more than 300 hospitals and health systems. By expanding its reach and creating more growth opportunities, the acquisition can allow Teladoc to continue building on its strong sales numbers.
However, that could be a drop in the bucket compared to what the recently announced merger between Teladoc and Livongo Health (NASDAQ:LVGO) could mean for the company's future. The deal is worth approximately $18.5 billion, and could help Teladoc not just grow sales, but also expand its products and services.
One key area of focus for Livongo is treating people with diabetes. In its most recent quarterly results, released Aug. 5, the California-based company reported that more than 410,000 people were enrolled in its Livongo for Diabetes program, which makes it easy for patients to track their glucose readings online and communicate with health coaches. That's an increase of more than 113% from the previous year. And Livongo's also enjoying strong sales numbers amid the pandemic, with its Q2 sales soaring 125% from the prior-year period.
Combined, the two companies could be a force in the healthcare industry. The companies expect that the deal will close in the fourth quarter.
Should you buy Teladoc today?
Investors weren't excited about the news of a merger with Livongo, as shares of Teladoc fell 18.9% the day the news broke. But that's still a small dent in an otherwise strong year for the company. Both stocks have been soaring in 2020:
With Teladoc shares falling in value in recent days, now could be the perfect time to buy this top healthcare stock on the dip, as years from now the investment could look like a steal of a deal. With two high-growth companies joining forces, the combined company could continue to deliver strong growth numbers for years to come, and that makes Teladoc a great stock to buy right now.