Technology stocks have been mauled by the bear market over the past 12 months, with many investors running for cover to ride out the ongoing economic storm. The situation has gone from bad to worse, intensified by 40-year-high inflation, rising interest rates, and questions about recessionary pressures in 2023. As a result, the Nasdaq Composite has been punished. The widely followed technology index has crashed 30% over the past year. Many individual stocks have fallen even further.
There's good news amid the doom and gloom. Investors have the opportunity to profit during the downturn, even as their paper losses mount. While opportunities abound, one sterling example is Teladoc Health (TDOC 0.76%). The tech-centric virtual healthcare platform, which is the global leader in telehealth services, has experienced a stock price decline of 71%, despite a strong history of continuing growth and its industry-leading position.
Can Teladoc overcome the gale-force headwinds that have buffeted its stock in 2022? Let's dig a little deeper to see what we can find.
Image source: Getty Images.
If you build it, they will come
The ongoing narrative over the past year has been that telehealth's best growth is over. The strong patient demand for remotely delivered healthcare services during the pandemic has waned, giving way to more tepid growth.
Yet, it's important to put Teladoc's pandemic-induced growth spurt into perspective, using its pre-pandemic results as a benchmark. In 2019, Teladoc's revenue grew 32% year over year to $418 million. That growth surged during the pandemic, with revenue in 2020 and 2021 soaring 98% and 86%, respectively. Tough comps and slower adoption have tamed its wild advances, with revenue that has grown roughly 20% during the first nine months of 2022.
While its growth is certainly more modest, it's still respectable -- and there's a lot more to come.
Where will the growth come from?
The bears will be quick to point out that the low-hanging fruit has already been picked. The story further goes that with the pandemic waning, the need for telehealth services has passed and growth is over -- but the evidence suggests otherwise.
One of the largest segments of the population -- the baby boomers -- is already reaching retirement age. This trend, better known as the "silver tsunami," will only increase the demand for telemedicine visits and home-based monitoring services.
Younger patients will also fuel growth. Millennials, Gen Z, and Gen X have all grown up using technology, so it's second nature to these patients. More than 70% of those in these younger generations say they prefer the convenience of telehealth services over traditional office visits, according to the Healthcare Information and Management Systems Society (HIMSS) in its 2021 State of Healthcare Report. In fact, 44% say they would switch healthcare providers if they didn't continue to offer telehealth visits as an option.
Projections for growth in the space seem to bear that out. The global telemedicine market amounted to roughly $40 billion in 2020, but it's expected to surge to $432 billion by 2030, a compound annual growth rate of about 26%. As the industry leader, Teladoc Health is well-positioned to ride that secular trend, enriching shareholders along the way.
Short-term headwinds, long-term opportunity
Most recently, investors have been focused on Teladoc Health's seemingly unhealthy bottom line. For the first nine months of 2022, the company reported a net loss of more than $9.8 billion, but that requires context. In 2020 -- at the height of the pandemic -- Teladoc made an ill-timed acquisition of Livongo Health for $18.5 billion.
This gave the company an immediate opportunity into the chronic health conditions monitoring market, providing personalized healthcare coaching for patients with diabetes and hypertension, as well as weight management and behavioral health issues like depression and anxiety. Unfortunately, it also gave Teladoc a pain in the wallet.
In early 2022, Teladoc took a total of $9.6 billion in non-cash impairment charges, which reflected the diminishing market value of its investment in Livongo. While Teladoc's financial results have suffered over the short term, the opportunity to leverage those systems into much more profitable ventures remains, and the company's bottom line should improve substantially going forward.
The time is now
Taken in total, the evidence suggests that Teladoc Health is well-positioned to benefit from the still-growing -- albeit slower -- adoption of digital healthcare. While there's no replacement for an office visit in some circumstances, for patients with issues that aren't critical, telehealth is well on the road to becoming a widely accepted standard of care.
Over the past year, Teladoc has cratered, down 71%. That puts the stock squarely in bargain-basement territory, selling for less than two times next year's sales -- its lowest valuation ever.
That's not to say that the stock couldn't fall further from here. The market is littered with examples that prove otherwise. However, given the company's history of growth, its large and growing list of opportunities, and its industry-leading position, investors would do well to buy the stock now, before Teladoc Health starts to soar.
