The so-called "pandemic stocks" are a group of companies that performed well during the early days of the coronavirus outbreak since, for whatever reason, their businesses were equipped to thrive in these highly unusual conditions. Telehealth specialist Teladoc Health (TDOC -2.40%) was one of them. The company provided a convenient way for patients to get medical care without leaving their homes.
However, like many other pandemic stocks, Teladoc has been on a southbound spiral since early 2021. The company's shares are worth less than they were in early 2020. Can Teladoc stage a comeback? Let's find out.
Why Teladoc is struggling
Teladoc encountered several issues after the initial rush of the pandemic. First, it stopped growing its revenue nearly as fast. The company's shares had arguably gotten too pricey, with baked-in expectations that it would continue to increase its top line at similarly impressive rates. When that didn't happen, investors weren't happy.
TDOC Revenue (Quarterly) data by YCharts
Second, Teladoc isn't profitable. The telemedicine specialist reported especially awful bottom-line figures in 2022 although that was due to non-cash impairment charges related to an acquisition. Teladoc improved on this front last year. However, with persistent red ink on the company's bottom line, many investors remain skeptical.
Third, Teladoc has had to deal with stiff competition. Consider the company's therapy service, BetterHelp. Teladoc wisely tried to fill a large unmet need -- depression and anxiety rose during the pandemic. The company's service offers lower prices than traditional, on-site therapy.
But Teladoc wasn't the only game in town, and its aggressive marketing campaigns in years prior didn't yield quite the results it expected due to competition. To compound the problem, "marketing and advertising" is typically the company's highest category of expenses by some margin -- it is one it will have to keep in check to turn a profit.
Can Teladoc handle these challenges?
The path forward
But there's some good news for Teladoc, too. The company is arguably building a competitive advantage and still has a massive runway for growth.
Let's start with Teladoc's competitive edge. Its platform benefits from the network effect. It currently has more than 90 million members and 40,000 clinicians. As those numbers continue to grow, Teladoc's ecosystem will become even more attractive to patients, companies looking to add telehealth to their health plans, and doctors.
That's an important dynamic that could allow Teladoc to take advantage of the whitespace ahead. Consider BetterHelp again. Teladoc estimates that about 33% of adults experience symptoms of depression or anxiety, but less than half of them receive treatment. In other words, though it has made progress in increasing its reach with BetterHelp, there is plenty of work to be done, even with the competition it is battling in this market.
Teladoc also has a chronic care segment that offers various services to patients with diabetes and hypertension, among other chronic illnesses. Here, too, there is plenty of room to grow. The prevalence of diabetes is only getting worse, a common trend among other chronic diseases.
What about Teladoc's net losses? The company isn't that far from turning a profit even as it continues to pump money into advertising. It reported a net loss of $1.17 per share through Sept. 30, compared to $61.09 in the parallel period of the previous fiscal year.
The goal is that once Teladoc becomes a more established company, marketing and advertising costs will decrease significantly. The company's high gross margins -- typically in the neighborhood of 70% -- will then finally translate into strong profits.
Meanwhile, Teladoc's shares have looked undervalued for a while. The company's forward price-to-sales ratio is 1.3, when anything under 2 is considered good. So, is Teladoc worth investing in right now? My view is that it is, provided investors are willing to stay patient. A comeback could take a little while longer, but the telehealth company has many of the tools to pull it off.
