Teladoc Health (TDOC 1.53%) and its investors haven't had it easy this year. The company reported 2 billion-dollar non-cash goodwill-impairment charges in the first half. And Teladoc's stock price hasn't been able to recover so far. The stock has lost about 70% year to date.
Still, Teladoc's revenue has continued to grow. And this has left the stock trading at bargain levels in relation to sales. Now, you may be wondering if the time is right to get in on this struggling stock. Or should you avoid Teladoc at all costs? Let's look at one green flag for Teladoc and one red flag before you make a decision.
Green flag: Market growth and leadership
Teladoc is a leader in virtual medical visits. Importantly, the company already had been growing revenue before the coronavirus health crisis.
TDOC Revenue (Annual) data by YCharts.
So, Teladoc's online visits aren't just a pandemic trend. Today, Teladoc serves more than half of Fortune 500 companies.
Teladoc offers clients primary care as well as access to more than 450 specialties. It has a dynamic mental health business, BetterHelp. In the most recent quarter, BetterHelp revenue rose 40% year over year.
Teladoc also has a booming chronic care business. This is key for two reasons. First, chronic disease is common. About six out of 10 Americans suffer from a chronic condition. Second, 30% of Teladoc's chronic care members have signed up for more than one program. This has improved member-retention rates.
Finally, let's talk about the general telemedicine market. Yes, the pandemic gave it a boost. Virtual medical visits soared 200-fold from 2019 to 2020, according to Arizton research.
But growth isn't over. General consultations online, for instance, may grow at a compound annual growth rate (CAGR) of more than 26% through 2027, the report showed. And about 83% of patients may continue to use telemedicine in a post-pandemic world.
Teladoc, as a leader, is in just the right spot to benefit from this growth in the years to come.
NYSE: TDOC
Key Data Points
Red flag: Investor confidence
Investors had already started worrying about Teladoc last year. Their concerns included Teladoc's lack of profitability so far and the possibility that demand for telemedicine will drop off once the pandemic is over.
These concerns seem overdone. It's not surprising to see Teladoc still working toward profitability at this stage of its development. And, as I mentioned above, the post-pandemic telemedicine market looks strong.
Still, when already-worried investors heard about Teladoc's impairment charges, they lost even more confidence in the company. Teladoc recorded these charges in the first and second quarters. They relate to its purchase of Livongo back in 2020. Livongo was a specialist in the virtual management of chronic conditions. The impairment charges indicate Teladoc paid too much for Livongo.
It looks as if Teladoc can excel in chronic care over time. And the Livongo acquisition could be an important part of that.
But for now, investors are focused on how this purchase is hurting Teladoc financially today. It may take a while for these investors to come back on board. They may have permanently turned their backs on Teladoc. Or in some cases, they may want to see signs of progress in the next earnings report or two.
In both cases, this may weigh on the shares for some time.
Should you buy Teladoc?
The answer to this question depends on your investment style and investment horizon. If you're a cautious investor or an investor who doesn't aim to hold on for the long term, it's best to wait on the sidelines for now.
As mentioned above, it could take some time for Teladoc to win investors over again. Meanwhile, the stock could stagnate or slip further.
But if you're an aggressive investor and don't mind waiting around for a while, it's a great idea to pick up some Teladoc shares at this level. They're trading at less than two times sales. The company is a leader in a growing industry. It may stumble for a while longer on the road to recovery, but the long-term picture remains bright.
