Shares of Teladoc Health (TDOC 2.92%) have plummeted from the high-water mark they set during the COVID-19 pandemic emergency. The stock is down about 95% from the peak it set a few years ago, and its board of directors finally did something about it.
On April 5, Teladoc's board of directors told investors that its CEO since 2009, Jason Gorevic, is departing immediately. The announcement contains no quotes from Gorevic, and the board hasn't selected a permanent successor.
Is the former high-flying healthcare stock a bargain now that it's been beaten down to a fraction of its previous peak and expecting new management? Let's weigh its strong points against its challenges to find out.
Reasons to buy Teladoc Health stock
At the end of 2023, around 90 million Americans had access to one or more of Teladoc's products and services. That makes it the nation's most accessible provider of telehealth services.
As the nation's most accessible telehealth provider, Teladoc could benefit from a network effect advantage. In theory, its large member base makes Teladoc Health an attractive partner for providers who want access to lots of patients.
In addition to primary care, Teladoc has large chronic care and mental health operations. With plenty of patients in multiple subspecialties, the company generates a lot of data about which interventions are most effective. This data trove could give the company a long-term advantage over smaller telehealth service providers.
Finally, Teladoc Health's bottom line is growing. Last year, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 33% to $328 million.
Reasons to be nervous about Teladoc Health stock
Tinkering around the edges with help from its data trove probably helps providers make better recommendations. But before getting too excited about Teladoc's data advantage, it's important to remember that there's a lot of low-hanging fruit when it comes to lowering healthcare expenses. For example, a majority of American adults don't even bother with annual flu shots.
Teladoc was founded more than 20 years ago, but it still isn't producing profits according to generally accepted accounting principles (GAAP). The company lost $220 million last year and expects significant GAAP losses this year too.
It isn't unusual for fast-growing businesses in new industries to lose money while they gain scale and market share. Unfortunately, Teladoc's days of rapid growth are over. At the midpoint of the guidance range management provided in February, total revenue is expected to creep forward by 3.2% this year.
Teladoc also provided a three-year outlook, in which top-line revenue is expected to rise by a low-to-mid-single-digit annual percentage. The outlook didn't include a GAAP earnings prediction.
Teladoc derives 88% of its revenue from access fees, but raising those fees to deliver a steadily growing profit could be more challenging than investors realize. The company's client list is huge, but it doesn't seem like these members appreciate their access very much.
There were 80 million Americans with access to one or more of the company's products and services at the beginning of 2023, but less than one in four used Teladoc to visit providers. In 2023, the company completed just 18.4 million telehealth visits.
Buy, sell, or hold?
Abrupt CEO departures rarely turn out well, but that isn't the only reason I wouldn't bet on Teladoc Health stock right now. The stock doesn't look like a buy on the dip because the company has had enough time following the COVID-19 pandemic to show evidence of a competitive advantage in the form of profits.
Teladoc isn't reporting net income on a GAAP basis, but it could be headed in that direction. The company reported $193 million in free cash flow last year, and management expects this figure to reach a range between $210 million and $240 million in 2024.
The beaten-down stock isn't a buy right now, but investors already holding it probably want to hang on to see if the trend toward sustainable profitability continues.
