Teladoc Health (TDOC -2.22%) and InMode (INMD -1.79%) both operate in high-growth industries. Teladoc is a leader in telemedicine. InMode specializes in selling devices in the minimally invasive and non-invasive aesthetics market. Both of these areas are delivering double-digit growth. And this equals big opportunity for these innovative companies.
Teladoc and InMode may offer investors a buying opportunity when it comes to price, too. They have fallen quite a bit from their record highs -- and are trading below analysts' 12-month share price forecasts. Now the question is: How much opportunity for gains lies ahead? And which of these players is more likely to rise fivefold first?
Teladoc
First, a bit about what's weighed on Teladoc shares. Teladoc has delivered quarter after quarter of double-digit revenue increases (and even triple-digit growth during the earlier stages of the pandemic). Still, investors have worried about the company's ability to turn rising revenue into a profit one day. And the company's billions of dollars in non-cash goodwill impairment charges last year deepened concerns. The charges were linked to a 2020 acquisition.
There's reason to be optimistic about Teladoc right now, though. Earlier this year, the company announced a shift in its strategy. Instead of favoring primarily revenue gains, Teladoc now is balancing things out to focus also on reaching profitability as soon as possible. The telemedicine powerhouse has cut some jobs, closed certain offices, and is working on boosting efficiency.
In the most recent quarter, revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) beat Teladoc's expectations. Revenue at the company's mental health business, BetterHelp, surpassed expectations. And revenue at the integrated care business -- these are plans sold to companies and organizations -- came in at the high end of forecasts.
This combination of demand that results in revenue gains and Teladoc's efficiency efforts should bear fruit over time. Meanwhile, Teladoc's financial position is another reason to like the company. The company's cash level today tops $900 million. And Teladoc aims to report more than $100 million in free cash flow for the full year 2023.
InMode
InMode sells radio-frequency-based devices that doctors use for aesthetics and women's health procedures. The company also is branching out into other areas, such as otolaryngology and ophthalmology, with its devices. This offers plenty of opportunities for growth down the road.
But let's look at the company's financial performance so far, with products primarily serving the field of aesthetics. InMode has steadily increased earnings over time.
INMD Net Income (Annual) data by YCharts
And even in difficult economic times, when you could imagine pressure on spending for aesthetics, performance continues. For example, in the most recent quarter, InMode reported double-digit increases in revenue and net income according to generally accepted accounting principles (GAAP). And the company has maintained a gross margin of about 83% in recent times -- an important element supporting growth.
Another key point in the growth picture is the following trend. Sales from consumables and services are on the rise, increasing 43% in the quarter to a record level. This shows InMode's devices are being used more and more frequently. And that's definitely a positive sign. It's also important because consumables represent recurrent revenue for the company.
Like Teladoc, InMode also has a healthy cash position. The company reported more than $574 million at the end of the first quarter, up from $399 million in the year-earlier period.
Teladoc or InMode?
Both of these companies look like promising buys. Now, let's consider which one could see its price multiply more quickly.
InMode's advantage is it already has reached profitability -- and has a solid profitability track record, as mentioned above. Teladoc is making progress. But if the company stumbles at any point, the shares could suffer.
As for valuation, both stocks look incredibly cheap. InMode is trading for only 13 times forward earnings estimates, down from more than 15 earlier this year. Teladoc is trading close to its lowest ever in relation to sales. Considering each company's earnings growth prospects, there's plenty of room for share price upside.
TDOC PS Ratio data by YCharts
Now, let's look at the possibility of a fivefold share price increase. In both cases, it's possible. Teladoc's shares would reach $125, well below the record high of more than $280. InMode's stock would climb to $170. That would be a record for the company. But if InMode continues to grow earnings at a strong pace -- as it's done so far -- the stock easily could make it to that level.
Which stock has a better chance of making this big gain first? I would bet on Teladoc. The market punished the stock last year due to the profitability worries. Now, the company is making big efforts to prioritize the profitability path. Progress here could translate into several catalysts for share price increases.
And Teladoc stock is starting from an exceptionally low point. Gains may not happen overnight. But Teladoc could beat InMode when it comes to scoring a fivefold increase.
