Last year was a big one for most growth stocks, but Teladoc Health (TDOC -2.40%) didn't participate in the rally. Shares of America's largest telehealth provider dropped 9% in 2023 and are down 6% so far this year.
If we look back a little further, we can see the stock is down more than 90% from the peak it reached almost three years ago.
You wouldn't know it by looking at its stock chart, but Teladoc Health is a much larger business than it was a few years ago. Could now be the right time to buy this beaten-down stock? Let's weigh its strengths against the biggest challenge it faces to see if it's a good stock to buy.
Reason to buy: Room to grow
Teladoc still hasn't set a date to present fourth-quarter results. We know though that during the first nine months of 2023, the number of Americans with access to at least one of its services rose 8% to 90 million. That could spell good news for the company.
And investors will be glad to know that Teladoc isn't relying on just one operation for growth. The company's mental health business, BetterHelp, finished September with 5% more paying users than it had a year earlier. Enrollment in its chronic care program rose 13% year over year.
Membership for Teladoc's services still has a lot of room to grow. There were just 459,000 paying BetterHelp users at the end of September. Diabetes affects over 34 million Americans, but Teladoc Health's entire chronic care program finished last September with just 1.1 million enrolled patients.
Reason to buy: P/S ratio looks attractive
America's leading telehealth service provider still doesn't have earnings to report. As a multiple of total sales, though, the stock looks like a bargain.
TDOC PS Ratio data by YCharts
At recent prices, you can scoop up shares of Teladoc for just 1.3 times trailing 12-month sales.
Before COVID-related lockdowns made seeing healthcare providers online a new normal, Teladoc shares never traded below 4 times sales and rarely traded below 8 times sales.
Reason to avoid: It's losing money
Health plans can choose from dozens of providers that compete with Teladoc Health. If your employer decides to switch health plans to one that uses a lower-cost solution, there isn't a lot you can do. As a result, Teladoc reported average revenue per user that improved by less than 1% during the 12 months that ended last September.
A business with over 90 million users should be able to make ends meet, but Teladoc Health's operations lost $213 million in the first nine months of 2023. The company is still reporting heavy losses more than eight years after becoming a publicly traded company because telehealth is a commoditized service.
Membership figures are advancing but at an expense that doesn't appear sustainable. The company racked up $702 million in advertising, marketing, and sales expenses during the first nine months of 2023. That worked out to 36% of revenue during the period.
BetterHelp reported a year-over-year gain, but retaining patients in this highly competitive market is a challenge. The number of paying BetterHelp users fell 3.6% during the three months that ended in September.
Put it all together
If you adjust for a few non-cash expenses such as depreciation, amortization, and stock-based compensation, Teladoc's operations generated $220 million in cash during the first nine months of 2023. It also exited September with over $1 billion in cash and cash equivalents.
With a strong balance sheet and a lead position in its industry, Teladoc's chronic losses won't be a major issue for a few years at its present pace. While welcome news, this is hardly a justification for investing in a commoditized business that will probably never produce reliable profits.
