Shares of Teladoc Health (TDOC 0.32%) were soaring 21.2% this week as of the market close on Thursday, according to data from S&P Global Market Intelligence. The only news from the virtual care company was the addition of new features to its virtual primary care product Primary360. This likely wasn't a big factor in Teladoc's big gains, though.
Instead, the increasing strength of the overall stock market appears to be driving Teladoc's share price higher. This could be causing short-sellers to close their positions in the stock, resulting in a moderate short squeeze.
As of June 15, nearly 26% of Teladoc's float was sold short. Teladoc short-sellers lose money if the stock goes up. This week's bounce for the stock market, with Teladoc going along for the ride, is exactly what short-sellers don't want.
Short squeezes typically don't last very long, though. Once enough short-sellers close their position, there won't be enough buying pressure to keep propelling the stock higher. It's also possible that other factors cause the stock to reverse direction even before that happens.
Long-term investors are better off focusing on the underlying business of a company instead of its temporary stock movements. In Teladoc's case, there are reasons for both optimism and pessimism.
The good news for the company is that its revenue growth remains strong, jumping 25% year over year in the first quarter of 2022. The bad news is that Teladoc expects slowing growth this year due to headwinds in the direct-to-consumer mental health and chronic condition markets.
Investors will want to especially pay close attention to Teladoc's competitive position with its BetterHelp behavioral health business. A surge in U.S. COVID-19 cases this fall could also lead to Americans using telehealth more, working in Teladoc's favor.