Shares of Teladoc Health (TDOC 3.31%) are trading at their 52-week lows. The stock is down 48% in just six months while the S&P 500 has risen 7%. From afar, it looks like this may be a problematic investment and one that investors should be dumping.
However, investors should be focused on the long term, not on short-term price fluctuations. As badly as the stock has done over the past six months, that's not an indicator of how well it might do in the years ahead. Here are seven reasons why I'm not worried about the healthcare stock and why I'm still going to hang on to my shares of Teladoc in 2022.
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1. The industry is nowhere near done growing
Investors who are considering giving up on the company may be making a mistake in assuming that in a post-pandemic world, telehealth won't be needed. But that isn't the case, as the sector has plenty of growth potential. Fortune Business Insights projects that the industry will be worth more than $636 billion in 2028, rising at a compounded annual growth rate of 32.1%. The research company notes that the pandemic has led to a surge in demand and that it "has also opened new market opportunities for digital health platforms."
2. Teladoc is launching a more comprehensive product
The company has a virtual primary care program, Primary360, which gives patients access to a doctor around the clock, even in non-emergencies. It is a whole-person offering that includes a member having access to a care team that provides guidance for ongoing health and wellness. It's relatively new, and this year could be a big one for the service, with CVS Health-owned Aetna, one of the largest health insurance companies in the U.S., making Primary360 available to its members nationwide.
3. It's starting to generate consistent free cash
In three of the past five quarters, Teladoc has reported positive free cash flow. That's an important number to keep an eye on, because that can be indicative of how well the business is generating money and if it will need to issue shares to keep growing. In the past two quarters, Teladoc's free cash has totaled $101 million, suggesting that it is on the right track (from the years 2016 through to 2019, its free cash was a negative $89 million).
4. Its strong financials give room for a possible acquisition
Not only is Teladoc generating plenty of cash, it's also sitting on quite a stockpile of it. For the period ending Sept. 30, 2021, Teladoc reported cash and cash equivalents of $824 million. And with the business not burning through money, it can possibly deploy that cash toward another acquisition to expand its services.
If growth stocks continue to fall in value, it could make the proposition even more attractive. For example, rival telehealth company American Well is only at a market cap of around $1.3 billion. A combination of cash and stock could get a deal done there. But there are plenty of smaller options out there as well. The point is that with plenty of cash and no cash burn putting a strain on it, Teladoc has the resources available to explore deals out there.
5. Consumers love the service
A big concern for investors is likely that just about any healthcare company can offer a telehealth service. And while it's true that there are many competitors in this arena (even Verizon's BlueJeans offers a telehealth product), that doesn't mean they're all the same. And Teladoc is clearly offering a service that consumers love. According to a study from J.D. Power last year, Teladoc "received the highest ranking and outperformed all other direct-to-consumer providers in all study subcategories, including customer service, consultation and enrollment."
6. It is generating more revenue per customer
Another metric that may have users down on Teladoc is its U.S. paid membership count, which as of last quarter was 52.5 million and up just 2% year over year. But it's still growth nonetheless, and I'd argue that a more important number is the revenue it is generating per customer, which is rising at a much faster rate.
On the company's most recent earnings call, Teladoc's Chief Financial Officer Mala Murthy stated that they are earning $2.57/month per member, which is more than double the $1.18 that they were generating a year ago.
7. Adjusted EBITDA is likely to double and may continue to soar
More money per member means better results and faster earnings growth. In the third quarter, Teladoc reported that its revenue over the past nine months came in just under $1.5 billion, double the $710.6 million it generated a year ago (however, much of that can also be attributed to its acquisition of Livongo Health, which closed on Oct. 30, 2020).
Teladoc projects that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will top $263 million for 2021, which is more than double the $127 million it reported in the previous year. With more growth likely coming from Primary360 this year and higher revenue per member, it's likely the company's earnings will only continue to rise in the future.
Teladoc is a solid buy, especially at this price
At around $82 a share, you would have to go back to 2019 to get Teladoc stock at a much cheaper price than where it is today. And that was before the pandemic, before the Livongo deal, and before so much growth was on the horizon. The recent crash in Teladoc's share price may be alarming, but it shouldn't be concerning for long-term investors. With solid financials and some strong growth prospects ahead, I'm confident the stock will recover.
