Please ensure Javascript is enabled for purposes of website accessibility

Is It Too Late to Buy Teladoc Health Stock?

By Zhiyuan Sun - Jul 20, 2021 at 8:14AM

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 boom in telehealth sparked by the COVID-19 pandemic was an outlier event, but what comes next?

Teladoc Health (TDOC 0.53%) has gone from one of 2020's hotter coronavirus stocks to one of the worst healthcare performers of 2021. Shares are down more than 50% from their February highs -- and falling. Investors are becoming increasingly skeptical of the company's ability to operate a digital consultation platform outside of pandemic conditions -- and they are not wrong to be dubious. 

The hype over telehealth is dying down -- and companies providing individualized virtual primary care are taking the brunt of the fall. Here's why the golden age for Teladoc stock is over. 

Discussing prescriptions via video call with the doctor.

Image source: Getty Images.

Solid past financials, but lots of risks ahead 

During Q1, Teladoc's total revenue increased by 183% year over year to $453.7 million as it facilitated 4.28 million sessions, up 109% from year-ago levels. It did not take many steps to improve its profitability, however, and its net loss widened to $199.6 million from Q1 2020's loss of $29.6 million. For the full year, the company expects its revenue to double to around $2 billion and for total visits to surge to 13 million.

Unfortunately, Teladoc's peak performance is arguably behind it -- and the company may have significant problems meeting its guidance. Telehealth use has already fallen by 37% from its pandemic highs.

What's more, in June, health system analytics company Trilliant Health released a report in which it analyzed 70 billion patient claims and 309 million patient visits. Its conclusion: Future demand for healthcare services overall will be flat or decline -- with little persistent tailwind from the pandemic -- and the use of telehealth in particular is slipping.

A lot of phenomena abide by the 80-20 rule, and telehealth appears to be one of them. For example, research has shown that only 13% of Americans have used telemedicine services during the pandemic. This is far less than what the number of total visits would imply, and it makes sense as a small fraction of users are responsible for a disproportionate share of visits.

There are a number of other players in this niche, among them Amwell (AMWL -1.96%) and UpHealth (UPH 28.82%), but due to its size and its spending on mergers and acquisitions, Teladoc has the most to lose if demand keeps sliding. Last year, the company spent $18.5 billion to buy digital chronic healthcare company Livongo Health. At the time, Livongo was only generating about $106.1 million in sales per quarter.

But chronic condition treatment isn't one of the more popular reasons why patients make use of telehealth services. Instead, behavioral health, substance disorder treatment, and consultations regarding endocrinology disorders take the top spots.

Much of Teladoc's core focus has been on direct primary care -- which is increasingly becoming a commodity market. Over the past year, branded telemedicine services such as Walmart's (WMT 0.96%) MeMD and Amazon (AMZN -1.44%) Care kicked off, making it harder for Teladoc and its peers to solicit individual patients.

The verdict

I think there's a good chance Teladoc will miss its guidance for 2021. For the next two years, expect its growth to stall in a hypercompetitive, highly commoditized sector. In addition, its strategy of growing membership and visit count at a loss isn't helping its profitability situation. The stock looks extremely expensive at 11.8 times revenue. Investors who still want Teladoc in their portfolios would be well advised to wait for its valuation to come down even further before buying this healthcare stock on the dip.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Amwell, and Teladoc Health. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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.
$37.99 (0.53%) $0.20, Inc. Stock Quote, Inc.
$140.64 (-1.44%) $-2.05
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$129.82 (0.96%) $1.24
American Well Corporation Stock Quote
American Well Corporation
$5.01 (-1.96%) $0.10
UpHealth, Inc. Stock Quote
UpHealth, Inc.
$0.89 (28.82%) $0.20

*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 analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

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.