There's a laundry list of companies that benefited from the global lockdowns which arose because of the COVID-19 pandemic. Among the top ones on that list is virtual healthcare company Teladoc Health (TDOC 0.30%).
But now that the economy has reopened in many parts of the world, the telehealth business has taken a turn for the worse. Its stock has nosedived 78% in the past year, and investors are really beginning to question the company's long-term business trajectory.
Is Teladoc just another pandemic winner that doesn't stand a chance in the post-pandemic world, or will the company get back on track in the years to follow? Let's take a look.
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What's Teladoc's deal?
It would be foolish to ignore the massive potential of the virtual healthcare industry. Fortune Business Insights estimates that the global telehealth market will climb at a compound annual growth rate (CAGR) of 32.1% through 2028, up to $636 billion.
For that reason, investors shouldn't doubt Teladoc's business opportunity; rather, they should be concerned about its execution. In its second quarter of 2022, the company's total revenue increased 17.7% year over year to $592.4 million, and it suffered a net loss of $19.22 per share, driven by a non-cash goodwill impairment charge of $18.78 per share.
In terms of other key operating metrics, total visits grew 27.6% to 4.7 million, and its revenue per U.S. member rose 12.6% to $2.60.
By and large, Teladoc is still enjoying fine growth -- of its 56.6 million paid U.S. members, patients are using the platform more often and generating more revenue than a year ago. Thus, the notion that virtual healthcare is a pandemic fad is simply untrue.
But what I'm concerned about with Teladoc is its lack of execution in the midst of growing competition. Competition is fine and often healthy, but in order to end up as a secular winner in the space, Teladoc will need to execute better. Coming into its fiscal 2022 year, management was guiding for total revenue between $2.55 billion and $2.65 billion, equal to 25% to 30% growth year over year, and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $330 million and $335 million, indicating a 23% to 33% uptick from fiscal 2021.
Fast forward to Q2, and management downgraded its full-year guidance for the second consecutive quarter. It now expects total revenue to conclude between $2.4 billion and $2.5 billion, equal to 18% to 23% growth, and its adjusted EBITDA to finish between $240 million and $265 million, indicating a yearly decline of 10% to 1%.
Management's lack of visibility of the business is very concerning -- investors would be more willing to accept a slowdown in growth due to a reopening economy as long as they were cautioned ahead of time. Major downward changes in guidance catches investors completely off guard and results in sharper sell-offs.
Is Teladoc stock worth the risk today?
Management's poor execution is keeping me on the sidelines for now, but I can't deny Teladoc's massive potential moving forward. Today, the stock trades at 2.2 times sales, well below its five-year mean price-to-sales multiple of 14.7. If the company can grow its top line at a CAGR of 15% through 2025, it would generate $4.1 billion in annual sales.
At a price-to-sales multiple of 7, which is roughly half of its historical average, the company's market capitalization would reach nearly $29 billion. That's nearly 500% higher than its current market cap of $4.9 billion. Thus, it's safe to say that Teladoc could generate fortunes for patient investors who buy at today's lows if the company is able turn its situation around in the coming years.
