If you have the money on hand to add to your portfolio in the current market, there's no shortage of companies on sale to consider today. While some stocks may be trading down for valid reasons, other companies that have seen prices fall significantly over the last year may be garnering an overreaction from investors and worth a second look.
If you have $1,000 to invest right now, here's one such stock that's currently trading down well over 50% from a year ago, but may still be a wise investment for individuals with a long-term, buy-and-hold horizon.
Has the Sun set on this pandemic favorite?
Few stocks were as popular at the height of the pandemic as Teladoc Health (TDOC -0.38%). The market leader in telehealth -- a rapidly growing industry on track to hit $636 billion by 2028 -- Teladoc had an incredibly appealing business model for investors seeking to capitalize on the stay-safe-at-home and work-from-home booms.
Over the last year, as many popular growth stocks have fallen out of favor, and much of the world has reopened and returned to a sense of normalcy, Teladoc has followed the path of so many work-from-home stocks. Shares of the company are down by a grimace-worthy 80% over the trailing 12 months.
Now, there have been some key reasons behind the stock's drop that go beyond the broader trend afflicting growth stocks at the moment. Worries over Teladoc's lack of profitability, combined with doubts concerning the acquisitions of the mental health platform BetterHelp and healthcare technology platform Livongo, both of which the company made in 2020, haven't done any favors for the stock.
Then there's that infamous $6.6 billion impairment charge related to the Livongo acquisition which management announced in Teladoc's first-quarter report, followed by a $3 billion write-down in the second quarter. While some may have seen these developments as the proverbial nail in the coffin for Teladoc, I take a different view.
Why it may be wise to take a second look
Despite increasing competition up -- from Amazon, which recently shut down its own telemedicine program, to relative newcomers like the start-up DocGo -- Teladoc's market leadership remains strong and continues to be one of the driving forces in the global telehealth market. And more than two years on from the height of the pandemic, in an increasingly new normal, Teladoc is still witnessing strong platform and user growth.
In the most recent quarter, Teladoc's revenue increased 18% year over year. Meanwhile, its average revenue per U.S. paid member rose to $2.60 from $2.31 in the year-ago period, a 13% jump. On top of that, total visits and sessions on the platform increased 22% from the year-ago period.
Yes, there was the ugly $3.1 billion net loss on its balance sheet, but bear in mind that $3 billion of that was the noncash goodwill impairment charge related to Livongo. While that's not good news, this is an accounting loss, and it's not the same as if the business were actually hemorrhaging that amount in cash. And, the company still has a healthy amount of cash on hand -- $881 million as of the most recent quarter.
As a Teladoc investor, I can attest to the fact that the road hasn't been easy. Far from it, in fact. It's likely to be a few years before Teladoc inches back to profitability. It's also probably not reasonable to expect pandemic-era levels of growth, at least not in the near future, but that's true of many businesses that saw hyper-charged revenue growth in that earlier period.
While it seems that Teladoc did indeed overpay for its purchase of Livongo, the assets it acquired in the deal have further diversified its platforms into every aspect of virtual care, which could reap dividends for the business over the long run.
For investors with a moderate to high level of risk tolerance and the patience to wait out near-term bumps in the road, the quality of Teladoc's underlying business and its clear leadership in a market that is only seeing increased adoption still make it a buy in my book.
