Right when some of us thought Teladoc Health (TDOC 1.98%) was nearing rock bottom, the company released first-quarter results for 2022. Down more than 60% prior to the announcement, the stock was already underwater due to macroeconomic headwinds and fear that the company wouldn't sustain success in a post-pandemic world. Following its earnings call, Teladoc's share price plummeted nearly 50% and is now down almost 80% in the past year.
NYSE: TDOC
Key Data Points
It's easy to follow the crowd and write this company off. After all, growth did unwind in the first quarter, and guidance was slashed on several fronts. After taking some time to digest the results, I don't believe the magnitude of the sell-off was warranted. Teladoc remains a leader in an extraordinarily fast-growing market and is still projected to enjoy solid growth in the coming years. Although I'd recommend proceeding with caution, this is a stock that contrarian investors should consider adding to their portfolios at current levels.
Image source: Getty Images.
A quarter to forget
The first quarter was the opposite of ideal for the telehealth pioneer. Investors were shocked when the company reported a net loss of $41.58/share that was driven by a non-cash goodwill impairment charge of $6.6 billion. Adding more fuel to the fire, management cut full-year 2022 revenue guidance to a range between $2.40 and $2.50 billion, down from the $2.55 to $2.65 billion target provided at the end of 2021.
According to its earnings release, the revised 2022 outlook stems from higher advertising costs in the company's direct-to-consumer (DTC) mental health and chronic condition markets. Jason Gorevic, the company's CEO, noted that the lower-than-expected yield on its marketing spend was primarily attributable to private competitors that are unsustainably using paid search advertising in an attempt to gain market share. It's important that management fulfills its guidance, so investors should closely monitor the company's ability to meet expectations in the quarters ahead. That said, I think the market overreacted to the latest news and completely neglected many positive takeaways from the earnings call.
What should investors do now?
Let's take a step back for a moment. First-quarter sales and total visits grew 25% and 35% year over year, up to $565 million and 4.5 million, respectively. For the full year, analysts are modeling a top line of $2.45 billion, equal to 20% growth from the prior year. With $839 million in cash and a debt-to-equity ratio of only 17%, the company's balance sheet offers security and financial flexibility.
We can expect a significant loss in 2022 due to the goodwill impairment charge, but over the long run, the business appears to be in good health. And when taking into account the $225 billion total addressable market by 2030, investors should feel confident that this stock can rebound in the coming years.
The latest pullback has created a great window of opportunity for investors to buy the stock at an all-time low valuation. Teladoc is currently trading at 2.6 times sales, representing its lowest-ever levels and a 140% discount to its five-year average price-to-sales multiple of 14.7.
TDOC PS Ratio data by YCharts.
Investors should ask themselves the following question: Is this company in a better or worse position now than it was a few years back? Sure, growth is decelerating, but the company has increased its paid members, generates more revenue per customer, and has seen an uptick in total visits since the start of the pandemic. Teladoc also boasts a stronger balance sheet and has significantly improved its cash flow generation.
The company will face its fair share of obstacles in the years ahead, but I don't think the latest sell-off was justified. Investors should exercise caution, but Teladoc is well-positioned for a sound recovery in the future. As the tech sell-off continues to exert downward pressure on growth stocks, don't be surprised to see this stock slide lower in the near term. That said, investors with long-term time horizons could be greatly rewarded down the road if they decide to buy Teladoc now.
