Superstar investor Cathie Wood is known for picking up promising stocks when they're down -- the founder and chief executive officer of Ark Invest doesn't mind going against the crowd. She's focused on innovative companies with promising long-term prospects, and these sorts of stocks populate her funds. Wood doesn't count on them delivering overnight but instead generating lasting growth over a period of years.
This top investor is betting on various big names such as Tesla, her top holding, as well as smaller companies such as gene-editing specialist CRISPR Therapeutics -- and her stock picks span a variety of industries, as long as innovation is involved. Investors often watch Wood and sometimes follow her investment moves, hoping to benefit from her expertise.
Well, in recent weeks, one of Wood's recurrent moves has been to sell shares of one of her longtime favorite stocks, Teladoc Health (TDOC 0.78%). Wood's flagship Ark Innovation fund and Genomic Revolution fund still include the telemedicine giant at weightings of 1.3% and 2.35%, respectively, so she hasn't given up on the company -- but she has steadily reduced positions. Should you follow her lead?
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Teladoc's booming early pandemic days
First, some background on this telemedicine story. Teladoc Health's revenue and visits soared in the triple digits in earlier pandemic days as people opted for virtual medical visits over traditional appointments. But when growth slowed to double-digit gains and Teladoc's acquisition of chronic care specialist, Livongo, resulted in billions of dollars in non-cash goodwill impairment charges, investors worried -- and the stock price progressively fell.
The concern was -- and is -- that Teladoc is struggling to turn revenue growth into profitability. In recent times, the company has made significant efforts to turn things around, and these efforts have brought some results. Teladoc early last year cut costs to bring spending in line with the growth opportunity and also pledged to balance its quest for revenue growth with its quest for profitability.
Teladoc has made progress on adjusted EBITDA, for example in the most recent quarter it climbed 20% to more than $63 million. The company's net loss deepened, but that loss did include about $17 million of restructuring costs -- something to be expected from a company in the middle of a recovery phase.
NYSE: TDOC
Key Data Points
Chronic care boosts growth
And Teladoc continued to show that its chronic care business is boosting growth. Chronic care enrollment rose 9% year over year, and there's reason to be optimistic about this area over the long term. That's because about half of Americans suffer from at least one chronic condition, so it's an area of great need.
A couple of negative points do stand out right now, though, and likely are weighing on the share price. First, longtime CEO Jason Gorevic stepped down in April, and chief financial officer Mala Murthy stepped in while the company searches for a permanent replacement.
This absence of a permanent leader represents an uncertainty for the company -- and Teladoc may have trouble winning over investors until it completes its search. In the recent earnings report, Murthy said the company expects to name a permanent CEO later this year.
Second, the promising area of mental health disappointed investors as the BetterHelp segment delivered decreasing revenue in the first quarter. And the company predicts flat to low single digit growth for the business this year. BetterHelp revenue climbed more than 20% in the first quarter of last year, so the pullback, even if temporary, clearly is enough to weigh on investor sentiment and stock performance.
A telemedicine leader
Meanwhile, it's important to remember Teladoc is a leader in its industry, has nearly 92 million members, and holds more than $1 billion in cash on the balance sheet. So the company has some key elements that could help it excel over the long term. And today it trades for its lowest ever in relation to sales.
TDOC PS Ratio data by YCharts
So should you buy, sell, or hold Teladoc? Unless you're an aggressive investor, it's best to hold off on buying this stock right now, and instead wait to see who is named as CEO and get a glimpse of that person's strategy for the company.
But what if you already own shares? In this case, you may want to decrease your position if you need the cash for another investment, for example. That may be part of the reason Cathie Wood has sold shares in recent times. Otherwise, though, it's best to hold onto your position if selling now would result in a loss. Teladoc is in a state of uncertainty today, but the company has made steps along the road to recovery and could win over time -- so it's worth staying put during these times of transition.
