Is it time to give up on telemedicine specialist Teladoc Health (TDOC 3.31%)? The company rose to fame during the pandemic as telehealth helped patients get medical care in the comfort of their homes, allowing them to avoid coming in contact with people with COVID-19.
But now its shares have been brought back down to Earth since the earlier days of the outbreak. There are certainly reasons to remain bullish on the stock, but the bears have some arguments of their own. Which side has the more compelling case?
Let's consider one reason to buy Teladoc stock -- and one reason to sell.
Reason to buy: An attractive entry point
Three years ago, Teladoc Health was far less known than it is now. Since then, its business has made tremendous progress, partly -- though perhaps not entirely -- due to the pandemic. Consider the company's total visits. While Teladoc has yet to release its fourth-quarter earnings, it expects total visits for its fiscal 2022 to be in the neighborhood of 18.5 million.
In 2021, Teladoc had 15.4 million visits, up an impressive 38% in a difficult comparison with 2020, during which visits had already doubled from 2019. Here's what that tells us: Teladoc is, in large part, maintaining the business it earned during the pandemic. Otherwise, the company's visits would drop closer to their pre-pandemic levels.
We can see the same trend in other metrics, including the company's revenue, average revenue per U.S. member, and total paid memberships. For Teladoc's top line, it expects revenue between $2.403 billion and $2.410 billion for the year, which would be a year-over-year increase of about 18% at the midpoint.
Here's one of the central factors that explains Teladoc's continued success. Telemedicine services are incredibly convenient for both patients and physicians. Of course, it's impossible to perform surgery over a videoconference, but the consultations, prescriptions, and referrals that telemedicine helps facilitate are essential.
Teladoc is also focusing on chronic illnesses. Through its subsidiary, Livongo Health, it provides personalized, data-based coaching in real time to diabetes patients to help them improve their health. About 60% of adults in the U.S. have at least one chronic illness, and that percentage will continue to rise.
And Teladoc is making aggressive forays into mental health services, too, through its BetterHelp platform, where patients can access therapy at a fraction of the traditional cost. In short, there are plenty of lucrative opportunities that Teladoc is hoping to pounce on, and the telemedicine market will continue growing rapidly.
But Teladoc's stock is worth only a fraction of what it was in early 2020 -- despite the progress its business has made in that time and the massive runway for growth ahead. So, one good reason to buy Teladoc shares may be that they look too cheap to ignore at current levels and relative to the company's long-term potential.
Reason to sell: Growing net losses
One important area in which Teladoc hasn't made progress over the past couple of years is the bottom line. The company is usually unprofitable, but its net losses worsened substantially last year. In the nine months ended Sept. 30, Teladoc's net loss per share was $61.09, compared to the net loss per share of $2.68 reported in the comparable period of the previous fiscal year.
In fairness, most of the red ink on the bottom line last year was due to non-cash impairment charges related to its 2020 acquisition of Livongo Health, proof that the company overpaid for this acquisition. But even putting that aside, Teladoc would have fallen short of profitability. In today's challenging economic environment, investors are increasingly finding unprofitable companies suspect.
That's probably why Teladoc's shares have fallen off a cliff in the past 12 months.
The verdict: Is Teladoc a buy?
Teladoc's long-term opportunities are potentially formidable, but the company must address its net losses. The good news is that the telemedicine specialist seems to be moving in the right direction. After recording massive impairment charges in the first two quarters of 2022, it had no such charge in the third quarter. Furthermore, like many other companies on Wall Street, Teladoc recently announced it would resort to layoffs to cut costs.
Teladoc was usually pretty close to breaking even before last year, and it should get back to that level this year:
TDOC Net Income (Quarterly) data by YCharts.
Overall, I think Teladoc's prospects in telemedicine outweigh the fact that the company remains unprofitable for now. Its revenue should continue growing at a good clip, likely for a long time, which would eventually allow it to turn a profit. And since investors can get shares for a mere fraction of what they were worth three years ago, that makes Teladoc an attractive stock to buy now.
