The idea of buying Teladoc Health (TDOC -0.07%) in 2022 may make some investors nervous because the telemedicine stock sank 54% last year. And performance this year isn't off to a brilliant start, either. The shares have lost about 14% since Dec. 31.
Investors are worrying that patients may abandon telemedicine after the pandemic ends. And that would mean Teladoc's best days are behind it. If that's the case, how will the still-unprofitable company make it to profitability?
These are risks. But I also see some clues indicating these risks may not take shape. In fact, there are three great reasons to buy shares of Teladoc right now.
Image source: Getty Images.
1. It's more than just a COVID stock
Some investors viewed Teladoc as a "coronavirus stock" because patients flocked to online medical appointments -- instead of in-person ones -- during the early days of the health crisis. And those investors were right. The pandemic gave Teladoc the opportunity to attract more users and show its strengths. But this doesn't mean Teladoc won't perform well post-pandemic.
We actually have some elements that indicate Teladoc's business will continue growing in a post-pandemic environment. First, the company has continued to report increasing revenue and medical visits -- well after medical offices returned to normal operations and welcomed patients on site. For example, online visits climbed 37% in the third quarter of last year. And today, 82% of patients consider virtual visits the same as or better than an in-person visit, Teladoc said in a presentation, citing research reports.
The outlook for the entire telehealth industry also supports the idea that Teladoc's business gains are far from over. The global market, at a compound annual growth rate of more than 25%, is expected to reach $431 billion by 2030, according to Allied Market Research.
Teladoc may grow even faster. It predicts a compound annual growth rate of 25% to 30% to reach $4 billion in revenue in 2024. The company estimates there are 298 million total insured lives in the U.S., and 92 million have access to a Teladoc product. This leaves plenty of room for growth over the long term.
2. An acquisition that could pay off
Teladoc acquired Livongo in 2020. The company is a specialist in the virtual management of chronic conditions like hypertension and diabetes.
The operation comes with its costs. Various expenses associated with the Livongo acquisition have weighed on earnings. But I see this as a near-term obstacle on the route to profitability.
The acquisition of Livongo allowed Teladoc to make gains in its quest to serve all of its patients' healthcare needs. We're already starting to see some results.
In the third quarter, 24% of Teladoc's chronic-care members were enrolled in multiple programs. That's up from 8% in the year-earlier period. And the number of members enrolled in chronic-care programs climbed 31% to 725,000.
Today, about 6 out of 10 American adults suffer from a chronic disease, according to the Centers for Disease Control and Prevention. This clearly is a population that could represent increases in membership and revenue for Teladoc.
3. Valuation
As I mentioned earlier, Teladoc's share performance over the past year looks pretty grim. The stock now is trading at only about six times sales. That's compared to nearly 25 times sales a year ago.
TDOC PS Ratio data by YCharts.
Wall Street also considers Teladoc cheap at today's level. It's trading about $10 below the very lowest 12-month price estimate. And the average Wall Street estimate calls for an 88% gain in the coming year.
So right now is a good moment to get in on this stock from a valuation perspective -- and from a business perspective. Although Teladoc's growth and stock performance soared during the early days of the pandemic, that doesn't mean the Teladoc story is over. In fact, a lot more may lie ahead for this innovative company.
