Healthcare is big business, especially in the United States, where the average person spends $12,530 on healthcare annually. Big markets attract innovation, and telehealth became a hot topic during the pandemic. Telehealth companies like Teladoc Health (TDOC 3.31%) and Hims & Hers Health (HIMS 3.79%) saw big share price bumps, but have since fallen to multi-year lows over the past 18 months.
Now that the dust is clearing following COVID-19, which is the better growth stock for the long haul? After digging into the numbers, the answer might surprise you.
Meet our competitors
Teladoc is a leading telehealth platform that conducts millions of virtual visits each year (about 18 million over the past year). The company thrived during COVID-19 lockdowns when patients were pushed to adopt digital care to avoid in-person office visits. But the company is more than a video call with a doctor; it acquired Livongo for $18.5 billion, integrating its chronic care and data monitoring technology to build what Teldadoc calls Primary 360, whole-person care that lets patients receive primary and personalized care through a smartphone app.
Hims & Hers also offers telehealth services but angles more toward being a consumer-facing brand versus a digital cog in the traditional healthcare system. Initially specializing in certain conditions like sexual health and hair loss, Hims & Hers is steadily opening up its offerings to new areas like mental health. Patients can consult a healthcare professional through the website or app and get the appropriate prescription if necessary. The company also sells its supplements and other products in retail stores.
Looking at growth
Comparing Teladoc to Hims & Hers requires some context. You can see below that Teladoc is currently a much larger company, with $2.3 billion in trailing 12-month revenue versus $444 million for Hims & Hers. Teladoc is also an older company, having gone public in 2015. Hims & Hers didn't go public until the end of 2020.
TDOC Revenue (TTM) data by YCharts
But what catches one's eye is the differences in growth rates over the past couple of years. You can easily see how Teladoc benefited during the pandemic; revenue growth spiked to triple digits. But while Teladoc's growth slowed, Hims & Hers is still growing quickly. I would expect Hims & Hers to grow faster because it's a smaller company, but it's notable that Hims & Hers is showing that its rapid growth is sticking around, which could bode well for its future.
Judging financial strength
Unfortunately, neither company is profitable, but there's some nuance here. First, Teladoc generated free cash flow of approximately $65 million over the past year. The bottom line is negative, largely because the company's taken some hefty non-cash charges on its net income because it overpaid for Livongo. Hims & Hers is still burning cash -- free cash flow is a negative $29 million over the past four quarters. That isn't terrible because it's still a young and growing business, but you need to keep an eye on its balance sheet.
TDOC Cash and Short Term Investments (Quarterly) data by YCharts
Fortunately for Hims & Hers Health, the company has a cash position of $198 million against zero debt. That's way more than it's burned, so Hims & Hers should have money to fund the business for a while. Teladoc has $900 million in cash, but also $1.5 billion in debt. This shouldn't be a problem as long as Teladoc continues generating cash profits, but it's something that investors should keep an eye on. In all, both companies seem on a stable financial footing at the moment.
Which is the better growth stock?
Hims & Hers strikes me as the better growth stock moving forward due to its superior revenue growth rate and healthy balance sheet. Teladoc could still be a solid long-term investment, but might have a lower ceiling if growth doesn't pick back up. Both names trade at a similar price-to-sales ratio, 2.7 for Hims & Hers versus 2.3 for Teladoc.
TDOC PS Ratio data by YCharts
Technically, Hims & Hers is more expensive, but one could argue that such a faster growth rate could justify a more significant valuation gap between the two than what you see. Hims & Hers is rapidly picking up subscribers, which should drive revenue as the company expands into new niches within the healthcare market. Only time will tell, but it seems Hims & Hers is the better all-around growth stock today.
