Teladoc Health (TDOC 0.05%) shares crashed 40% in one trading session this past week after the company delivered bad news: The telehealth giant recorded a $6.6 billion noncash goodwill impairment charge and slashed annual guidance.
The stock already was suffering prior to this, as investors worried about competition and about when Teladoc might make it to profitability. So now, shares are down more than 60% year to date.
Some investors clearly preferred to exit the Teladoc story right away. But others have held on -- or might even be considering buying shares. What's the best decision? A lot of it has to do with your investment style. Let's take a look at Teladoc's situation, and then consider what might be the right decision for you.
Teladoc is a leader in the telemedicine space. The company aims to provide care for the "whole person" -- from mental to physical health. In the recent quarter, 78% of total sales were multiproduct. This shows that members like the idea of going to Teladoc for a variety of healthcare needs. An important part of the picture is chronic care, and that's why Teladoc bought Livongo in 2020: Livongo products specialize in the management of chronic conditions, such as diabetes and high blood pressure.
Teladoc hasn't been profitable. But it has steadily grown both revenue and numbers of medical visits by percentages in the double or triple digits since the start of the pandemic. And annual revenue already was on the rise well before the pandemic.
Now, let's get to the recent bad news. Teladoc recorded a noncash goodwill impairment charge of $6.6 billion in the quarter. Goodwill is the amount a company pays for an asset beyond the actual value of that asset. The recent impairment charge suggests that Teladoc paid too much for Livongo. That said, Livongo's products are still being integrated into the Teladoc platform, and they're likely to eventually contribute significantly to growth.
Teladoc's woes also involve the performance of its BetterHelp mental health business and its chronic-care business. In BetterHelp, yield on marketing spend has been disappointing in recent weeks, as smaller rivals have bid high to win online advertising opportunities. In chronic care, the time line to signing on clients has lengthened; that's as employers focus on the coronavirus and on getting employees back to offices instead of deciding on telehealth contracts.
All of this led Teladoc to cut its full-year forecast. It decreased revenue guidance to a range of between $2.4 billion and $2.5 billion. That's compared to earlier guidance in the range of $2.5 billion to $2.6 billion. In large part, this lowered guidance is based on the troubles with BetterHelp and chronic care. It's important to note that these issues are likely to be temporary, and that they aren't due to a problem with Teladoc's services. Also, Teladoc still predicts significant growth this year for both BetterHelp and chronic care.
Now, let's get back to our question. Should you buy, hold, or sell Teladoc shares after their enormous drop? As mentioned above, the company faces headwinds right now, but so far, they don't signal a problem with what Teladoc has to offer. And this means there's a decent chance they will eventually dissipate -- and the company will be back on track.
In this scenario, the stock is looking pretty cheap right now. It's trading at only 2.1 times forward sales estimates. That's down from more than 18 earlier this year:
A risky bet
That said, Teladoc carries a lot of risk. It's impossible to say whether declines are over -- or whether the negative market sentiment for this stock will continue. And if Teladoc's troubles last longer than expected, its shares could take quite a while to recover. Or they may not return to the levels seen in the past.
Before investing (or not investing) in Teladoc, it's crucial to consider your own investment style and comfort level with risk. If you're an aggressive investor, now might be a good time to pick up some Teladoc shares. Revenue is growing in the double digits. The company still is building up its whole-person solutions -- and that should bear fruit in the future.
If you already own Teladoc shares, and would sell at a loss today, you might want to consider holding. Once the company is beyond this difficult point, revenue growth and news of more and more contracts could drive the shares higher.
But if you're a cautious investor, it's best to hold off on buying right now. Instead, you might want to wait and watch the company's progress this year to get a clearer idea of how long recovery may take.