Please ensure Javascript is enabled for purposes of website accessibility

This Is Why Teladoc Is a Great Stock to Buy Right Now

By Jason Hawthorne - Mar 17, 2021 at 8:22AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The market is offering a rare discount just as uncertainty is clearing up.

As you would expect, telehealth has seen a dramatic uptick over the past year. From the moment the pandemic took hold and stay-at-home orders were announced, people began embracing the virtual option to get medical care. Teladoc Health (TDOC -4.47%) and American Well (AMWL -1.87%) were two of the biggest beneficiaries, as health systems and insurers made sure their customers were able to talk to doctors and get the care they needed even if they couldn't leave the house. 

Teladoc took advantage of the boost, acquiring chronic disease management company Livongo, another beneficiary of consumers' need to go remote. Now that millions of Americans are being vaccinated each day and COVID-19 cases are in a sharp decline, it may seem like an odd time to recommend shares. However, there are three reasons the stock could be a great buy right now.

A female doctor in front of her computer conducting a virtual visit.

Image source: Getty Images.

The company is growing rapidly

Investors dream of the kind of growth the company has put up over the past 12 months. Subscription members were up 41% year over year while non-subscription visits rose 10%. The 10.6 million visits the company's platform supported last year were an incredible 156% more than 2019. The increased usage led to 98% revenue growth. Removing the impact of two acquisitions, sales in 2020 were still 75% higher than the prior year. Management is projecting more of the same this year.

The full-year guidance of $1.95 billion to $2 billion in sales represents an 80% increase at the midpoint. Much to the delight of shareholders, more of the sales are beginning to drop to the bottom line. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), a loose measure for cash flow, is projected to come in at $255 million to $275 million. That's an increase of 110% from the $126 million last year and more than eight times the $32 million Teladoc reported for 2019.

Recent acquisitions are starting to pay off

When CEO Jason Gorevic presented at a healthcare conference in December, he shared the company's $500 million goal for revenue synergy from the acquisition of Livongo. One analyst immediately accused the company of being overly conservative, claiming the potential for added sales far exceeded that number. He might be right, but management is focused on blending the two companies before making bold predictions. 

The first step was integrating the commercial organization, namely sales and marketing, which Gorevic reported as complete on the late February earnings call. Next will be approaching clients with that unified front to cross-sell Livongo's products to Teladoc customers and vice versa.

So far, that effort appears to be on track and gaining steam. Teladoc has already signed more than a dozen cross-sell deals and the pipeline of opportunities more than doubled from November to February. Despite the progress, the CEO says the bulk of the financial impact will land in 2022. With the deals signed so early in the year, it's hard not to see that as another conservative target.

The stock is down a lot

Although growth is strong, and the acquisition of Livongo seems to be on track, Wall Street has recently gotten nervous about Teladoc stock. Shares, which once traded as high as $295, now change hands at about $200, down by a third. The price-to-sales ratio (P/S) of 16 is only slightly above the low it hit at the depths of the March 2020 sell-off and then again in November.

Although cases of COVID are declining and the company's virtual health offerings may no longer be a necessity for many, management believes the habits formed over the past 12 months could keep utilization high going forward. So far, the data supports this. Despite the ebbs and flows of the virus, utilization over the four quarters of 2020 increased from 13.4% in the first quarter to 16% and 16.5% in the second and third quarters, respectively, before closing the year at 17.7% for the fourth quarter. If that trend holds, it will mean lower costs for clients and higher retention rates and subscription pricing for the company.

For investors who felt they had missed out on buying shares last year, the market's uncertainty is offering a chance for a stake in what could be the dominant virtual health provider in the decade ahead. While Wall Street worries about how the next year will compare to pandemic-fueled 2020, the company's financials and value proposition to customers continue to strengthen. For those with a multi-year time horizon, the stock is currently offering a tantalizing discount.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
$32.09 (-4.47%) $-1.50
American Well Corporation Stock Quote
American Well Corporation
AMWL
$3.15 (-1.87%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.