Teladoc Health (TDOC 2.46%) shares have been on a pretty consistent losing streak since the start of the year. And a recent goodwill impairment charge and headwinds for two of its key businesses added to the stock's woes. Teladoc now is down about 65% year to date.
At the same time, the telemedicine giant has continued to report double-digit revenue growth and increases in visits in an overall growth environment. At a compound annual growth rate of about 32%, the global telemedicine market is set to reach more than $636 billion by 2028, according to Fortune Business Insights. In such a situation, it's difficult to decide what to do. Should you forget about this healthcare stock? Or is now the best time to buy? Let's take a closer look.
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Triple-digit increases
First, a little background. Teladoc shares soared in the early days of the pandemic as people flocked to online medical visits. The company posted triple-digit increases in both revenue and visits. Importantly, Teladoc isn't just a pandemic stock. Revenue already was climbing at Teladoc before the pandemic.
And today, now that we're past the lockdown stage, Teladoc revenue and visits continue to grow. In the first quarter, they gained 25% and 35%, respectively. So, it's fair to say people weren't just opting for telemedicine at a time when going to a doctor's office was difficult.
Teladoc's first wave of stock market troubles began in August of 2020 when it agreed to purchase Livongo, a specialist in the management of chronic conditions. Investors worried about this expense considering the fact that Teladoc wasn't yet (and still isn't) profitable. The stock rebounded but then lost momentum as concerns about future growth persisted.
Most recently, Teladoc announced a $6.6 billion non-cash goodwill impairment charge. This reinforced investors' worries that Teladoc had indeed paid too much for its Livongo acquisition. At the same time, Teladoc's mental health business faced higher advertising costs. And the chronic care business was taking longer to finalize contracts. That delay happened as benefits managers focused more on bringing employees back to offices than on signing the healthcare plan agreements.
Near-term challenges
All of these elements represent challenges for Teladoc in the near term. But here's the good news: They don't change the overall bright picture over the long term. The Livongo acquisition should pay off in time. It's allowed Teladoc to strengthen its "whole person" offer. This is key if Teladoc hopes to stay ahead of competition in this increasingly competitive field. There's real evidence the "whole person" concept is working. For example, in the first quarter, 78% of all sales were multiproduct sales. And the company said many of its clients are interested in combining Teladoc's primary care offering with additional components, such as mental health and chronic care.
And speaking of the mental health and chronic care businesses, even with the current headwinds, they're still growing. This year, Teladoc predicts the BetterHelp mental health service will grow in the upper half of its long-term target range. And chronic care revenue is set to grow in the low-to-mid teens, the company says.
So, yes, this is a difficult and costly moment for Teladoc. But there are clear signs these troubles won't last forever. At the same time, and considering the potential for growth ahead, the stock looks incredibly cheap. Teladoc shares are trading for 2.3 times sales. That's compared to more than 24 about a year ago.
Is it time to invest?
Does this mean now is the time to invest in this telemedicine leader? It depends on your investment style. If you're a cautious investor, you may want to remain on the sidelines for now. Any further disappointments could weigh heavily on the stock's performance. But you might consider adding Teladoc to your watch list. You'll want to monitor the growth of BetterHelp and chronic care this year to see if those businesses meet the company's forecasts. If the current headwinds die down, it may be worth considering the stock, depending on the price and other factors at that time, of course.
If you're an aggressive investor, though, now may be a good moment to add some shares of this dynamic player to your portfolio. I don't expect an immediate rebound. But over time, Teladoc could reach its goal of delivering whole person care on a grand scale. Patients will surely benefit. And early investors in the company should too.
