What happened

Teladoc Health (TDOC -4.67%) stock is plummeting following the company's recent first-quarter earnings release and conference call. The telehealth company's share price was down roughly 41.9% since last week's market close as of 3 p.m. ET this Thursday, according to data provided by S&P Global Market Intelligence

Teladoc reported Q1 earnings after the market closed yesterday. Revenue rose 25% year over year in the period to reach $565.4 million, but it reported a loss per share of $41.11 due to a massive goodwill impairment charge. The company also issued downward guidance revisions for this year, and the one-two punch is prompting a precipitous sell-off for the stock. 

A person looking at an arrow crashing through the floor.

Image source: Getty Images.

So what

Teladoc announced in August 2020 that it would be acquiring Livongo for $18.5 billion. At the time, pandemic-related social-distancing conditions were having a much bigger impact on the overall healthcare space, and the market was generally willing to pay much higher multiples for growth stocks. Since then, growth stocks have seen substantial multiple contraction as risk factors including high inflation and looming interest rate hikes have come into focus, and "pandemic stocks" have also generally fallen out of favor with investors.

As such, Teladoc likely paid a much higher price to acquire Livongo than it would have if it purchased the company this year, and it was expected that the company would wind up taking a significant goodwill impairment charge due to the deal. In fact, management said as much with its last annual filing.

A big write-down this quarter was largely to be expected. However, the $6.6 billion write-down the company delivered with its Q1 report came in much worse than most analysts anticipated.

Making matters worse, the company also unexpectedly lowered its sales guidance for the year to between $2.4 billion and $2.5 billion, down from its previous guidance for sales between $2.55 billion and $2.65 billion. With the company's target for U.S. paid membership holding steady at between 54 million and 56 million, that suggests that its services could be losing pricing power. 

Now what

With a market capitalization of roughly $5.4 billion, Teladoc is now valued well below the price it paid to merge with Livongo, and it trades at just two times this year's expected sales. It's clear that Teladoc is facing some challenges in addition to the tough comparisons to periods when the pandemic was serving as a more powerful growth catalyst. However, the recent sell-offs for the stock appear dramatically over done, and the company's shares look cheap at current levels.