A darling of the stock market for most of 2020 and early 2021, Teladoc Health's (TDOC -2.91%) share prices are currently down by over 76% from its 52-week high of $308 (reached on Feb.16). Although Teladoc has consistently reported robust financials, investors are now concerned about the future of telemedicine in the post-pandemic world. Additionally, with the U.S. Federal Reserve planning several interest rate hikes in 2022 to combat the higher and stickier-than-expected inflation, investors have been increasingly shifting their funds from growth to value stocks.
While these investor concerns cannot be ignored, the dramatic drop in Teladoc's stock price seems overdone. In the third quarter (ending Sep. 30, 2021), revenues soared by 81% year over year to $522 million, while total patient visits jumped by 37% year over year to 3.9 million. Even though the company will most likely not see the kind of explosive growth seen in 2020, the secular tailwinds driving the stock are too strong to ignore. The global telehealth market is expected to grow annually at a compound average growth rate of 32.1% from $91 billion in 2021 to $636 billion in 2028.
Against this backdrop, here's why Wall Street seems to be expecting this high-corrected stock's price to almost double in 2022.
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Products focusing on whole-person virtual care
Teladoc's whole-person virtual care has been a key differentiator as well as a major driver for the company's sustained growth. The company offers a range of telehealth solutions in areas such as primary care, general medicine, chronic care, and mental health. Teladoc's prowess in non-infectious disease management will ensure that the company remains relevant even after the pandemic.
In October 2020, Teladoc completed the acquisition of Livongo Health, thereby strengthening the combined company's position in the chronic care and mental health markets. At end of the third quarter, the number of individuals enrolled in the company's chronic care programs, such as diabetes and hypertension, was up 31% year over year to 725,000. The increasing acceptance of these programs becomes evident considering that 24% of the chronic care members were enrolled in more than one program in the third quarter. The company also launched an integrated mental health service called myStrength Complete, combining mental health assets of Teladoc and Livongo, in May 2021.
Recently, Teladoc has also introduced another high-value product, a fully integrated virtual primary care solution for mental and physical health, called Primary360. The company has also entered into agreements with multiple health plans for Primary360, including Centene and CVS Health's Aetna.
Teladoc is now guiding for 14.5 million to 14.7 million visits in fiscal 2021 (ending Dec. 31, 2021), as it expects increasing paid subscriptions for its new products in areas such as non-infectious diseases and specialty care.
Multichannel strategy to boost adoption of virtual care
Teladoc has adopted a multichannel strategy to rapidly advance the penetration of its telehealth solutions. To that effect, the company has partnered with several health plans, global insurers and financial service firms, employers of varying sizes, as well as hospitals and health systems. According to Teladoc's Health Client Satisfaction Survey 2021, 99% of the company's employer clients plan to either maintain or increase their investment in virtual-care solutions in 2022. Teladoc Health is also benefiting significantly from a land-and-expand strategy, wherein clients first start with a single solution and then opt for additional services.
Improving monetization trends
In the third quarter, Teladoc's average revenue per member per month rose by 118% year over year to $2.57.
Currently, around 92 million, or 31% of the insured lives in the U.S., have access to the company's products. With 298 million total insured lives in the U.S., there is still much scope for the company to expand its client base. Additionally, Teladoc has estimated an additional $75 billion to $137 billion worth of market opportunity from its existing client base, which can translate to average revenue per member per month of $68 to $123. Even if the company succeeds in realizing 20% of this opportunity, it will reflect dramatically in Teladoc's top line and bottom line.
Healthy fiscal 2021 guidance
Teladoc has guided for fiscal 2021 revenues to fall in the range of $2.015 billion to $2.025 billion, implying a robust 85% year-over-year growth at the midpoint. The company also expects its adjusted earnings before interest, tax, depreciation, and amortization to be in the range of $260 million to $265 million.
Analysts expect Teladoc's annual revenues to more than triple to $6.5 billion in the next five years. The company, however, may take some time to reach breakeven.
TDOC PS Ratio (Forward) data by YCharts.
The recent pullback can be an attractive entry opportunity
Teladoc is currently trading at 4.8 times fiscal 2022 sales, the lowest it has ever traded since January 2020. Considering the many growth drivers of the company, Teladoc seems to be now trading at bargain-basement prices. Hence, I believe this stock is an interesting one to build a position in 2022.
