Last year, share prices of Teladoc Health (TDOC -2.40%) plummeted 74%. The telehealth company struggled to get its growth rate up, and its losses were in the billions. As a result, investors turned bearish on the stock. But there is reason to be optimistic about the business and its ability to bounce back.
Here is why Teladoc could be an underrated stock to buy and contrarian investors should consider loading up on it right now.
Teladoc's financials are improving
Last year was a troubling one for Teladoc as the company made multiple significant writedowns to goodwill due to its 2020 acquisition of chronic care company Livongo Health. As a result, in the six-month period ending June 30, 2022, Teladoc reported a net loss of just under $9.8 billion. Over the past six months, however, without any huge impairment charges, the company's net loss was just $134.4 million. Although Teladoc isn't profitable, it is at least going in the right direction.
TDOC Net Income (Quarterly) data by YCharts
Even cash flow is improving. Last quarter, operating cash flow was $101.2 million versus $92.5 million in the prior-year period.
There is more growth to come
In Teladoc's most recent earnings report, sales of $652.4 million were up 10% year over year. And while that growth rate is down from previous years, the company continues to grow, and that growth has been relatively stable of late.
TDOC Revenue (Quarterly YoY Growth) data by YCharts
While the pace hasn't picked up for Teladoc, the company's CEO, Jason Gorevic, is optimistic about the future. According to a recent survey that Teladoc commissioned, "Three out of every four employers expect to spend more on virtual care over the next three years." Virtual care can be a more cost-effective option for employers, and with Teladoc being a big name in telehealth, it can benefit from an increase in demand.
The valuation is dirt cheap
Teladoc's stock price has collapsed 87% in the past three years. The hype and excitement surrounding the once-popular healthcare company faded severely. But now that it isn't on many investors' radars anymore, the valuation has become much more tenable.
TDOC PS Ratio data by YCharts
At less than 2 times revenue, investors can get the stock at a lower valuation than even before the pandemic, when telehealth wasn't nearly as popular as it is today. For growth investors, the stock is a potential bargain buy.
Has Teladoc become a no-brainer buy?
Improving financials, a modest valuation, and more growth ahead for the business are reasons why this can make for an underrated stock to buy today. Teladoc shares have been rising since the company reported earnings last week, but there can still be a lot of upside left for the business, as the industry is still in its early growth stages.
