Shares of Teladoc Health (TDOC -2.91%) recently popped up more than 10% after the company announced an expansion of provider-based care for weight management and prediabetes.
Helping patients access hyper-popular drugs used to combat obesity, such as Wegovy and Ozempic, could attract more patients to Teladoc Health's industry-leading telehealth platform. Despite a recent surge, Teladoc Health's stock price is down more than 90% from its peak in early 2021. Is this a good stock to buy now, or is the risk of another stock market clobbering too high?
Before you make any rash decisions regarding Teladoc Health, let's weigh reasons it could outperform against reasons to relegate the stock from your buy list to a watchlist.
Reasons to buy Teladoc Health now
Teladoc Health is America's largest provider of telehealth services. Last year, the company's platform facilitated around 22.7 million telehealth visits, and around 80 million Americans have access to at least one of its services.
Teledoc Health acquired BetterHelp, a mental health service provider, in 2015 and chronic disease management company Livongo in 2020. Integrating these services made Teladoc Health the first company to offer whole-person virtual care at scale. The recent inclusion of provider-based care for weight management and prediabetes is another big step in this direction that its competitors haven't taken yet.
An ounce of prevention is worth a pound of cure, even if provided online. By delivering whole-person care solutions, Teladoc can create better clinical outcomes for individuals while curbing expenses for the health plan sponsors that choose this company over its competitors. This advantage should allow Teladoc to compete on price with endless waves of smaller competing telehealth services.
At recent prices, you can buy Teladoc Health stock for the relatively low price of just 1.9 times trailing sales. That's less than one-tenth its valuation when the stock was at its peak.
Annual sales are up sharply since the stock was at its previous peak. If the market gets as excited about Teladoc's future as it was a couple of years ago, it could provide enormous gains from present levels.
Reasons to remain cautious
Teladoc Health has already achieved scale, but it's still bleeding money. The company lost a stunning $13.7 billion in 2022. Even after adjusting for one-time impairment charges related to the poorly executed acquisition of Livongo, the company still lost $257 million last year.
This asset-light business had less than 5,000 full-time employees at the end of 2022. Operating at scale, with theoretically better pricing power than any of its competitors, it should be making heaps of money.
The losses we've seen from Teladoc mean it's either a poorly managed company or telehealth is a lousy business to be in. To management's credit, I think it's more of the latter than the former. Either way, the road ahead of this business looks like a rough one.
TDOC Sales and Marketing Expense (TTM) data by YCharts. TTM = trailing 12 months.
In theory, an ability to provide coordinated care that lowers overall expenses should drive demand toward Teladoc Health. Operating expenses that have outpaced sales over the past few years suggest this isn't happening.
It's not hard to understand why the Teladoc investment thesis isn't working out in practice. Whole-person health provides a lifelong benefit, but few Americans can stick with one health plan sponsor their entire life. Most of us get new health plan sponsors when we get new jobs and again when we select Medicare plans.
If health plan sponsors can't expect to reap the long-term rewards that better virtual care platforms provide, they'll just select lower-cost providers. Without a solution to the short-termism plaguing America's convoluted healthcare system's increased commoditization of telehealth platforms, continued losses for Teladoc Health seem likely.
Watchlist worthy
Teladoc Health's done a great job at becoming America's largest virtual healthcare platform. Before risking your own money, though, investors should probably wait for signs that this telehealth platform can reliably earn money.
The company will report results from the first quarter of 2023 on Wednesday, April 26, after the market closes. If there's significant progress toward profitability, I will happily change my tune. Until it starts making ends meet, though, it's probably best to keep this stock on a watchlist.
