Teladoc Health (TDOC -2.40%) got crushed last year -- its price dropped 74%. But it wasn't the bear market that weighed on this telemedicine giant. Investors sanctioned the stock for specific reasons. They worried about Teladoc's inability so far to post a profit. The company's announcement of two billion-dollar goodwill impairment charges added to those concerns. And investors also gave an extra thought to the idea of competition moving in on Teladoc's territory.
Now, in 2023, it looks like the tide may be turning. The stock started the year off right, climbing about 27%.
Is this just a one-time rally? Or will this beaten-down stock truly bounce back? Here are three things to know.
1. The worst may be over
The worst may be over -- and I'm not just talking about share performance. Teladoc may be progressing toward profitability. In the third quarter, the company's net loss narrowed. And Teladoc didn't report any additional impairment charges linked to its acquisition of Livongo back in 2020.
Speaking of Livongo, this purchase may eventually pay off for Teladoc. Livongo brought strengths in the virtual management of chronic care. And chronic care is a big growth area for Teladoc. More than half of adult Americans suffer from at least one chronic illness. Teladoc's own experience shows the existence of multiple chronic care programs boosts member retention.
It's important to note Teladoc's decrease in chronic care members from the second quarter to the third is due to the loss of one government client -- a new leader decided to stop offering primary care management to employees.
This one event doesn't change Teladoc's overall growth outlook. Teladoc still increased chronic care enrollment 9% year over year in the third quarter. And the company forecasts high-single-digit chronic care revenue growth for 2022.
2. Teladoc is making progress in key areas
If Teladoc aims to reach profitability, it's important for the company to grow member numbers and revenue per member. And that's exactly what the company has been doing. Every quarter over the past year has seen a sequential increase in both metrics.
Teladoc reported triple-digit growth in revenue and visits during the early days of the pandemic. And some labeled it a "coronavirus stock."
Yes, the pandemic did offer Teladoc a lift. But the company already was growing prior to the health crisis. And Teladoc has continued to increase both revenue and visits in the double digits. All of this means Teladoc's growth wasn't limited to the early pandemic days.
Finally, Teladoc's rate of keeping members is in line to better now compared to the past two years -- even considering the loss of the government client in the third quarter.
3. Telemedicine is a high-growth business
Teladoc has shown that it's a high-growth company -- during the worst of the pandemic and in ordinary times. That's due to the company's focus on primary care and areas with a lot of need, such as chronic care and mental health. But it's also due to the general market.
Telemedicine itself is a high-growth industry. The worldwide market, at a compound annual growth rate of 24%, is expected to reach $455 billion by 2030, according to Grand View Research.
In a presentation last year, Teladoc said more than 80% of consumers in a survey said telemedicine is equal to or better than traditional medical visits. And 60% of people surveyed said they would be interested in a telemedicine plan.
At the same time, Teladoc is a leader in the market -- so it can benefit from this growth now and well into the future.
What does this mean for investors?
Today, Teladoc shares are trading around their lowest ever in relation to sales.
TDOC PS Ratio data by YCharts
This looks cheap considering the three points I mentioned above. Of course, Teladoc still must prove to investors that it can reach profitability -- and any bump along the path could weigh on the stock. So the company's shares still carry some risk.
But if you can handle a bit of risk, considering the company's progress so far and the market opportunity, Teladoc makes a great buy. It has what it takes to generate outstanding growth over time -- and this could equal major returns for investors who get in on the Teladoc story today.
