Teladoc Health (TDOC -2.40%) is coming off another earnings performance in which the business made incremental improvements, but not quite enough to make Wall Street happy. And so down the stock went, crashing to new lows. It's unfortunately a normal cycle that many Teladoc investors, including myself, have become accustomed to.
But here's why it's not worth throwing in the towel on the stock, and why it may be a good time to invest in the telehealth provider.
1. The company has been improving its bottom line
Last year, a big problem for the business was that Teladoc was routinely writing down goodwill. It turned out that Teladoc overpaid badly for Livongo Health when it bought the chronic-care company for $18.5 billion back in 2020. Nowadays, Teladoc investors would be thrilled if the entire company were worth that much.
The good news is that at least those impairment charges are gone. And Teladoc has been making strides in getting closer to breakeven. It isn't there yet, but for the last three months of 2023, it reported a net loss of $28.9 million, which is a lot smaller than the impairment-filled $3.8 billion loss it incurred a year ago. That's also better than the $57.1 million loss Teladoc reported a quarter earlier.
This year, the company still projects a loss, but it's moving in the right direction. Net loss per share is expected to be within a range of $1.10 to $0.80, which would be better than the $1.34-per-share loss it posted in 2023. Breakeven may still be far away, but there are signs of progress.
2. The risk of competition may be exaggerated
One of the big arguments against investing in Teladoc is that any company can offer telehealth services: The barriers to entry are low, and so competition is high. And while that's true, Teladoc has an advantage in that it's already established itself as a leading telehealth player and has been building trust with consumers over the years.
Amazon began offering telehealth services a few years ago in what seemed to be a threat to Teladoc, but it ultimately discontinued its telehealth business, Amazon Care, in 2022.
While another tech company or healthcare business may be able to offer telehealth services, that wouldn't necessarily doom Teladoc. The industry is large enough to support multiple players. And with Teladoc reporting 18.4 million total virtual visits last year (up from just 4.1 million in 2019), it's achieved some impressive growth over the years even as competition has been increasing.
3. The long-term potential is massive
The telehealth industry skyrocketed in popularity during the early years of the pandemic. Now that things are heading back toward normal, Teladoc Health doesn't seem as attractive a buy anymore.
But the growth story isn't over for the company. There may be a slowdown right now, but in the long run, there's still a lot more growth out there. By 2030, analysts from Grand View Research project the global telehealth market will be worth $455.3 billion -- more than three times this year's expected value of $123.3 billion.
Investors aren't thrilled that the company is expecting annual revenue growth in the low to mid-single-digits over the next three years, but that doesn't mean Teladoc can't outperform those expectations, or do better in the years beyond that. Telehealth services can make it easier to stay on top of chronic conditions such as diabetes and hypertension. And as the population ages and there are more seniors with mobility issues, there will also be a need for more flexible and versatile healthcare services. That's where telehealth can fill a valuable need.
Expectations and guidance aren't set in stone and can be upgraded in the future. Investors shouldn't fixate too much on the company's initial three-year guidance.
4. Teladoc's valuation is incredibly low
Teladoc's business may not be growing rapidly right now, but even if its guidance proves to be right, the healthcare stock still looks extremely undervalued today. Here's a look at the stock based on its price-to-sales (P/S) ratio:
TDOC PS Ratio data by YCharts.
Surely, the stock's outlook is better now than before 2020, when the majority of people may not have even known what telehealth was. And yet, the stock is trading as if Teladoc is in big financial trouble, which it isn't.
Teladoc stock looks like a steal of a deal right now
The past few years have been rough ones for Teladoc Health's stock; that's largely to do with the stock's high valuation and too much hype surrounding telehealth during the early stages of the pandemic. But now there appears to be an overcorrection in which investors are being too bearish on the business.
Teladoc Health has a lot of work to do in improving its bottom line and finding ways to generate more growth, but the stock is definitely worth a higher P/S multiple than it's trading at right now. If you're willing to be patient, this can be an investment that generates some great returns for your portfolio in the long run.
