Teladoc Health (TDOC -2.91%) is a pandemic darling that investors have soured on over the past year. Many believe it will no longer be a top growth stock as the economy returns to normal and people aren't stuck at home due to COVID-related restrictions.
Short-sellers have targeted the company and believe that even at a value of less than $4 billion, Teladoc's valuation could go even lower than it is right now. Are the short-sellers right, or is this a stock that can turn things around this year?
Short interest has been rising
Early in 2020, telehealth looked like the future of healthcare and Teladoc was one of the hottest stocks to buy. As a result, short interest in the stock fell dramatically. But that trend has been reversing, and now that the excitement around Teladoc has cooled, more than 20% of the company's float is shorted:
TDOC Percent of Float Short data by YCharts.
So many investors betting against the stock puts downward pressure on the share price. And in 2022, shares of Teladoc fell a massive 74% (while the S&P 500 declined by just 19%).
Teladoc's losses likely spooked investors
The company didn't do itself any favors last year as impairment charges totaling nearly $10 billion led to significant losses. A major reason: Teladoc simply paid too much for chronic-care company Livongo Health in 2020. The purchase price of $18.5 billion is more than five times what Teladoc is worth today.
TDOC Net Income (Quarterly) data by YCharts.
The good news is that the goodwill impairment losses were gone in the third quarter, so Teladoc's net loss of $73.5 million looked better; that was an improvement from the prior-year period, when it reported a loss of $84.3 million. But through the trailing nine months, its net loss still totaled a hefty $9.8 billion.
The industry is still in its early stages
Globally, the telehealth market could be worth more than $636 billion by 2028, according to analysts from Fortune Business Insights. They project that the industry is growing at a compound annual rate of 32%.
There's plenty of potential for Teladoc to take advantage of that as it's partnered with Microsoft and its service is available on the tech company's communications platform, Teams. Teladoc's services are also available via Amazon's virtual assistant, Alexa.
As a leader in the telehealth industry, Teladoc has continued to demonstrate strong growth, with sales up 17% last quarter to $611.4 million. That's an impressive rate amid inflation.
Should you buy Teladoc stock?
Today, Teladoc trades at around its 52-week low and at a price-to-sales multiple of just 1.6. This year, the company's bottom line should look better and more consistent as it (hopefully) gets away from impairment charges. And if it continues to generate decent growth, it could become a popular buy again, which could make a short squeeze a possibility.
Given its strong sales numbers, free cash flow totaling $65.2 million over the trailing 12 months, and a beaten-down share price, Teladoc is a stock with some promising upside. Although there's still a risk that it could go lower, I'm optimistic that the healthcare company can prove the short sellers wrong and rebound this year after a tough performance in 2022.
