Telehealth has been growing in popularity this year, as patients are in need of much more flexible healthcare options amid the coronavirus pandemic. With hospitals deferring procedures in order to manage COVID-19, and people spending more time at home, being able to remotely connect with a physician allows patients to get the care they need while social distancing and staying safe. One company that's benefited from that rise in demand is Teladoc Health (TDOC -4.67%).

The healthcare stock is up 137% this year, significantly outperforming the S&P 500 and its 14% returns. However, with vaccines from Pfizer and Moderna showing efficacy rates of more than 90%, investors may be wondering if the need for telehealth will remain strong next year and if Teladoc is still a good company to invest in. Let's take a closer look at the business and see whether the stock could go higher, or if it's time to cash in some of those gains.

Stethoscope and pen on a laptop

Image source: Getty Images.

The business continued to grow even after lockdowns ended

One encouraging sign for Teladoc is that in the third-quarter earnings it released on Oct. 28, the company saw the number of virtual visits continue to climb. At 2.8 million, the number of virtual visits during the period ending Sept. 30 was up slightly (2.9%) from the second quarter, which was up until the end of June and which included lockdowns. Revenue of $288.8 million in Q3 more than doubled the prior-year period's tally and rose 20% from Q2. 

And it's possible that these trends may not die down anytime soon, as it's not just young, tech-savvy users who are using telehealth. Seniors are becoming more comfortable using technology for healthcare amid the pandemic. A survey on healthinsurance.com earlier this year found that 43% of seniors plan to continue to use telemedicine even after the pandemic is over.

Merger with Livongo will add diversification and create new opportunities

Even if there is a dip in telehealth activity as the economy gets back to normal and people aren't avoiding in-person visits to the doctor's office, Teladoc's business is much more robust and versatile today than it was at the start of the pandemic. On Oct. 30, the company completed its merger with chronic care company Livongo. Together, the two companies can provide a much broader experience for patients that helps them with ad-hoc inquiries they may have with the one-off telehealth visit, while also providing them with ongoing, recurring care for chronic conditions, like diabetes. With only a 25% overlap in customers, the companies served very different needs, and together they will be much stronger and more versatile.

While there may be fluctuations in the demand for telehealth in the future -- as some patients may only be using it because they have no other choice -- the need for managing chronic conditions will always be there. That should add more stability to the new, combined company. However, with COVID-19 cases continuing to rise, the demand for telehealth likely isn't going away just yet.

And the longer that patients can try out and use telehealth, the more likely it is that they'll become used to it. One of the reasons Teladoc CEO Jason Gorevic is optimistic about the future is that satisfaction levels are high among telehealth users. It can also be a cheap way to get healthcare, with an Everyday Care visit costing people without insurance just $75.

Is the stock a buy?

If you're a growth investor, it's easy to be bullish on Teladoc, especially now that Livongo is included in the package. There's potential here for the two companies to experience even more explosive growth by taking advantage of their respective strengths and varying customer bases. The only question is whether the valuation is too rich. The business isn't profitable today, and Teladoc has incurred losses in each of the past eight quarterly results. Adding another company into the mix could make turning a profit even more challenging, as it'll take some time to get rid of redundancies.

Today, Teladoc stock trades at a price-to-sales multiple of 18, far higher than the typical stock on the Health Care Select SPDR Fund, which investors are paying just 1.7 times revenue for.

In the past three months, the hype surrounding Teladoc is showing signs of cooling off, with the stock up just 4% while the S&P 500 has risen 10%. Hype's played a big role in Teladoc's rapid ascension in value this year, and there's a danger that as investors are more focused on vaccine stocks and on an economic recovery, this top telehealth stock may struggle generating the same bullishness it did earlier in the year. 

Despite the attractive growth opportunities that the stock possesses, investors may be better off waiting for more of a dip in price before investing in Teladoc. And if you own shares of the company, now could be a good time to sell, as the stock's high valuation could make it vulnerable to a sell-off if there's another market crash.