Investors like to keep a close eye on the activity of fund managers and billionaires, looking for hints as to where to invest. While Warren Buffett is popular with value investors, Cathie Wood is perhaps more appealing to investors willing to take on a bit more risk. Her ARK Innovation ETF focuses on a theme of "disruptive innovation" and has generated returns of more than 500% over the past five years -- outperforming the S&P 500 and its 92% gains during that period.
One of her latest moves was to load up on Teladoc Health (TDOC 6.61%), as shares of the telehealth business have been falling in 2021. But with looming competition from Amazon (AMZN 0.19%), should investors also buy shares of the company, or is this a move that is only suitable for a fund manager with a broad portfolio to make?
How cheap is Teladoc today?
Let's start by taking a look at just how much Teladoc has dipped in value and its current valuation. Since the start of February, its shares have cratered a massive 35% while the S&P 500 has increased about 5% in value. That's a sizable sell-off, but lately, investors have been dumping expensive growth stocks, perhaps out of fear that they could be due for a correction.
Today, the stock is trading at around $170. The last time it closed below that mark was in June 2020. The problem is that Teladoc's business remains unprofitable, accumulating losses of $485.1 million in 2020, nearly five times the $98.9 million that it incurred in the previous year. The widening loss accelerated at a higher rate than revenue, which nearly doubled to $1.1 billion.
With a market cap of $26 billion, the stock trades at a multiple of 24 times its trailing 12-month revenue. That is well above the 2.8 times sales that the S&P 500 trades at. Even within the ARK Innovation ETF, the average stock trades at 9.5 times its revenue.
Although Teladoc is certainly cheaper than it was just a few months ago, that doesn't mean it is a bargain buy. And although it has generated some impressive growth numbers in 2020, there could be many obstacles in its future.
Growth may be a lot harder to come by
Last year, 10.6 million telehealth visits took place on Teladoc's platform, which is an increase of 156% from the previous year. For 2021, the company expects more modest growth, forecasting total visits to come to between 12 million and 13 million. That would imply a growth of no more than 22.6%. But it is still expecting a phenomenal sales year with its top line potentially reaching $2 billion.
One reason for the discrepancy there is that it now owns Livongo Health, a company that focuses on chronic care and can help its telehealth business reach more patients.
But with Amazon recently announcing that it will be offering a telehealth service to employees across the country and also making it available to companies, it could soon chip away at Teladoc's existing market share. The $1.5 trillion business has the capability to undercut providers if it wants to for the sake of getting people to try its service.
And Amazon isn't the only threat. Earlier this year, Cigna announced it would acquire MDLive, another telehealth company. The insurer has taken note of the growing trend in the segment, as has pharmacy retailer CVS Health, which also offers virtual visits with a physician on its website.
More competitors will likely pop up in the industry, given its size and potential. A report from ResearchAndMarkets last year projected that the telehealth market could be worth more than $70 billion by 2026, growing at a compounded annual growth rate (CAGR) of 17.7% until then.
Is Teladoc worth the risk?
Teladoc is facing a lot of competition, but the advantage it has today is that it is much further ahead of Amazon and other new entrants. Investors also haven't seen how well the business could do for a full year with Livongo Health, not to mention the opportunities the two companies could uncover together.
The stock still isn't cheap and comes with a bit of risk. However, if you are looking for a top telehealth stock to invest in, it's hard to go wrong with Teladoc. It's an industry leader, and given that it has gotten bigger and more diversified, that's not likely to change anytime soon. And so, whether you're a big fund manager or just a retail investor, Teladoc could still be a great investment to add to your portfolio given the long-term growth opportunities in the industry.