Teladoc Health (TDOC 2.80%) has delivered plenty of news that's been difficult for investors to digest. The telemedicine company reported two billion-dollar non-cash goodwill impairment charges earlier in the year. And the company saw slowdowns in the time it generally takes to sign on new clients. As a result, the company's shares tumbled 70% from the start of the year through earlier this week.
But the tide may be turning for this market leader. Teladoc made gains in two key areas during the most recent earnings period -- the third quarter. And the shares are trading around their cheapest ever in relation to sales.
Is it a good idea to buy this healthcare stock right now? Let's take a closer look.
Sticking close to home
First a bit of background on Teladoc, from times of enormous growth to the recent difficult period. Teladoc posted triple-digit gains in revenue and virtual medical visits during the early days of the pandemic because people favored sticking close to home -- even for medical appointments. As a result, the shares climbed.
But recent times haven't been easy. Revenue and visits have continued to grow these days in the double digits. Investors still worried that Teladoc's growth would eventually slow. Other concerns included potential competition and Teladoc's lack of profitability so far. When the company announced goodwill impairment charges linked to its purchase of Livongo, fears multiplied.
Today, though, the picture looks like it's brightening. Teladoc didn't report further impairment charges in the third quarter and delivered positive news regarding key membership trends. These membership details are signs Teladoc is far from losing favor among clients.
The first bit of good news has to do with chronic care. This business could contribute to Teladoc's health over the long term. That's because chronic conditions impact so many people. Almost half of Americans suffer from at least one chronic illness, according to the American Hospital Association.
NYSE: TDOC
Key Data Points
Chronic-care growth
In the third quarter, the number of Teladoc members enrolled in chronic-care programs rose 9% year over year. Importantly, Teladoc has said enrollment in more than one chronic-care program has generally led to higher retention rates. The focus on chronic care is helping Teladoc connect with a large percentage of the population -- and is keeping those members coming back.
Investors haven't been thrilled about the negative financial impact of the Livongo purchase. But that deal brought Teladoc something that could be valuable over the long term -- additional strength in chronic care. The Livongo products should eventually work to the company's advantage as it aims to grow in the market.
Now let's turn to the idea of membership, in general. Here we see that Teladoc made progress in another significant area that could drive revenue over time. The company gained in U.S. paid members and revenue per member on a year-over-year basis. New client sign ups and expansion within existing clients drove the increase. These numbers also have been steadily growing from quarter to quarter over the past year.
As for valuation, Teladoc is trading for about two times sales. That's nearly its lowest ever.
TDOC PS Ratio data by YCharts.
Is it time to buy?
Let's get back to our question -- is Teledoc a buy now?
Things are looking up for the company, but is it really a good time to buy the shares right now? The answer depends on your comfort with risk. Teladoc shares look cheap in relation to sales, and the company has given us several elements, mentioned above, that could support long-term growth.
At the same time, Teladoc still hasn't reached profitability. This isn't shocking for a company at this stage of its development. Teladoc has reported progress in this area, but it does represent a weakness.
Considering these points, cautious investors might want to hold off on Teladoc until the company reports another quarter or two of improvement. But investors who are comfortable with some risk should consider buying Teladoc now. If the company continues along on this recovery -- and growth -- path, rewards could be big over the long term.
