Sometimes it is worth it to buy shares of companies on the dip, and sometimes it isn't. It all depends on whether there are good reasons to believe the company in question will bounce back, and if it will, there is arguably no better time to invest than when it is down.
Thankfully, even in a bull market like the one we're experiencing, you can find beaten-down but otherwise exciting stocks to buy. However, other market laggards are better left alone. Let's consider one stock in each category: Teladoc Health (TDOC 1.64%) and Novavax (NVAX 2.08%).
NYSE: TDOC
Key Data Points
The stock to buy: Teladoc
Teladoc is a leader in the telemedicine market, but its position in this industry has not helped it get back in the good graces of investors. The company has recorded sub-par financial results for a while, with slowing top-line growth and persistent net losses. Teladoc rode a pandemic-related tailwind when its business became much more popular amid the outbreak, but things have cooled down. Last year, Teladoc's revenue increased by just 8% year over year to $2.6 billion.
TDOC Revenue (Annual YoY Growth) data by YCharts
Teladoc did improve substantially on the bottom line. Its net loss per share of $1.34 was much better than the loss per share of $84.60 recorded in 2022. In fairness, Teladoc reported significant non-cash impairment charges in 2022 related to an acquisition. Still, that's good progress. And despite the company's struggles, there is hope. Telemedicine wasn't just some pandemic trend.
It offers convenience to patients and physicians, which is why multiple polls have found that people plan to continue using it. Teladoc boasts a significant ecosystem that includes more than 90 million members and 40,000 clinicians. The company is building a network effect, and as its platform invites more members, it will also invite more physicians (including specialists), and vice-versa. Further, Teladoc's gross margin is high.
In 2023, the company's adjusted gross margin was 70.8%, up from 69.1% a year ago. Marketing and advertising expenses remain high for the telemedicine specialist, but these costs should decline as Teladoc gains in prominence and becomes better established. Though Teladoc may remain volatile in the short run, it could deliver excellent returns over the long run. It is a bit too early to give up on this stock.
NASDAQ: NVAX
Key Data Points
The stock to avoid: Novavax
Novavax sought to become a leader in the COVID-19 vaccine market. However, the biotech was left behind by competitors. Though it generated some sales from its coronavirus product in the U.S., the pandemic started waning soon after. While it is true that the coronavirus vaccine market won't simply disappear, Novavax is a minor player in this shrinking space. It is unclear whether it can generate significant sales from it.
The biotech expects total revenue between $800 million and $1 billion in 2024. Last year, it generated total sales of almost $1 billion. So, at best, Novavax's top line will remain flat compared to 2023. That's not what investors want to see. And it is even harder to predict how the company will evolve beyond the next nine months. Maybe that wouldn't be such a problem if Novavax had a pipeline full of promising candidates, but that's not the case.
The company's only other notable program that could meaningfully contribute to its top line is a combined coronavirus/flu vaccine. It expects to start a phase 3 study in the second half of the year. This vaccine can hardly get Novavax out of trouble, though. Even if it manages to launch this product on the market -- and there is no guarantee that it will -- Moderna and Pfizer both have similar candidates that could earn approval sooner.
Further, a successful combined COVID/flu vaccine could decrease sales from Novavax's established franchise. So, Novavax's prospects look bleak, at best. Investors should stay far away from this stock.
