Some growth stocks are rising along with the broader market, while others have eluded these trends due to various concerns from investors. While some of these concerns may be justified in certain instances, good businesses can still go through rough patches.
If you have the risk tolerance to invest in beaten-down growth stocks, and the proper buy-and-hold horizon, you could become part-owner in intriguing businesses that make a valuable addition to a well-diversified basket of investments. Here are two such names that the market is doing no favors to today, but which could still be solid buys over the long run.
1. Teladoc
Teladoc Health (TDOC 0.08%) hasn't had a good time of it from a share price perspective. The stock is trading down by over 50% from one year ago. This seems to be derived from a few factors, including ongoing concerns over the trajectory of the business, its slowdown in growth from peak pandemic levels, and worries about a lack of profitability.
And after about 15 years in the CEO seat, Jason Gorevic recently stepped down from the role, with the company's CFO Mala Murthy serving as temporary replacement. It's been a lot of changes for the telehealth company, which attracted the attention of many investors in the earlier days of the pandemic when it seemed the entire world shifted to virtual interactions.
Management changes do happen at companies of all sizes, and don't necessarily need to worry investors. While I'll be watching what happens with the C-suite closely in the coming months, along with other Teladoc shareholders, it's very possible that the company is going in a new direction as it looks toward achieving sustained profitability and a new era of growth following pandemic successes.
On the business front, the company is delivering solid growth on multiple levels and is free cash flow positive. Teladoc grew revenue 8% in 2023 from the prior year to $2.6 billion, while delivering adjusted earnings of $328 million, up 33% on a year-over-year basis. The company finished the year with 89.6 million integrated care members in the U.S., up 8% compared to the end of 2022.
On the basis of generally accepted accounting principles (GAAP), Teladoc's net loss was around $220 million, a vast improvement from the nearly $14 billion net loss it reported in 2022. Bear in mind, most of that latter figure was derived from impairment charges and other non-cash items, which -- while not pretty to look at -- is not the same as actual cash losses.
Teladoc nearly doubled its operating cash flow in 2023, generating $350 million in the 12-month period. Free cash flow totaled just shy of $194 million, an improvement of about 1,041% from 2022. It's been a rough time to be a Teladoc shareholder, but this doesn't look like the story of a dying business either. Now could be a time for shrewd investors to scoop up even a few shares of this healthcare stock at a discount.
2. Chewy
Chewy (CHWY 0.44%) is known for its online pet care platform where animal owners can purchase everything from food to toys to bedding to other essential supplies for their furry friends. Through Chewy, pet owners also have access to an online pharmacy that can dispense both regular and compounded medications, a pet telehealth service, pet health insurance plans, and a range of other services and solutions.
Recently, Chewy began its first international expansion with its entry into Canada. Management estimates that this allows the company to capitalize on a total addressable market opportunity in the ballpark of $10 billion.
The company is also expanding into the brick-and-mortar space with the launch of vet healthcare practices. The first location for Chewy Vet Care will be in South Florida, where the company is headquartered, with other locations to follow this year. These practices will serve a range of needs, including routine appointments, surgery, and urgent care services.
These are big moves for a company like Chewy, which historically has been an online-only business. Investors will want to watch closely to see how Chewy executes its plans for international and domestic expansion.
In the meantime, Chewy is raking in considerable revenue and profits from its flagship e-commerce platform. In 2023, net sales totaled $11 billion, up 10% from one year ago, while net income totaled about $40 million. Of that net sales total, about 76% was attributable to recurring sales from Chewy's Autoship program.
Net sales per active customer rose 12% in 2023 to $555, and gross margin was approximately 30% for the 12-month period. While the stock is trading down about 50% from one year ago, that doesn't seem to give an accurate reflection of the performance of this business and its long-term growth opportunity. That could present a golden opportunity for forward-thinking investors.
