What happened
Shares of telemedicine specialist Teladoc Health (TDOC +2.35%) won a rare buy rating on Wall Street today when Argus Research announced it was upgrading the shares from hold to buy -- and assigning the company a $95 price target that implies 36% upside from today's prices.
So, naturally, Teladoc stock dropped 4.3% through 1 p.m. ET today... ?
Image source: Getty Images.
So what
Does that make sense? Ordinarily, when a Wall Street analyst tells investors that they can buy a stock and earn a 36% profit in 12 months -- and to drive the point home, labels that stock "buy" -- you'd expect the stock to go up, right? Well, not this time, and it's the way Argus laid out its argument that may be to blame.
Early in his note covered by StreetInsider.com, Argus analyst John Eade wrote, "After years of operating losses despite robust revenue growth, Teladoc is now on a clear path to profitability." So, yes, he's optimistic about Teladoc -- but it started out on kind of a sour note.
Nonetheless, he says that Teladoc is enjoying "growth in membership, utilization, and per member revenue" and points out that, as a result, the company swung to positive operating cash flow in 2021 -- $194 million worth. "Given current trends in revenue and operating expenses," Eade explains, "we see the potential for positive EPS by 4Q22."
Now what
If Teladoc does earn a profit before the year is out, then it makes sense we could see its stock rise mightily within a year's time -- but don't go counting chickens just yet. Turns out, Argus is pretty far out on a limb in predicting the company turns profitable this year. Instead, the consensus of analysts polled by S&P Global Market Intelligence is that Teladoc won't earn a profit this year, or next year -- or the year after that, either!
Honest-to-goodness profits according to generally accepted accounting principles (GAAP) aren't in fact expected to arrive before 2025 at the earliest, and even the prediction for that year is just $0.54 per share -- valuing this stock at a staggering 129 times earnings four years from now.
If that's the best prognosis there is for Teladoc, I'm not at all convinced the patient will be OK.
