Editor's note: The initial version of our article mistakenly linked Teladoc's earnings charge to the write-down of Livongo. We've corrected this to note that the charge was due to "challenges at BetterHelp," as specified by Teladoc's management on the earnings call. We apologize for any confusion and thank you for your understanding.

Teladoc Health (TDOC 4.78%) stock, the telemedicine specialist that made the controversial decision to spend $18.5 billion on diabetes care company Livongo in 2020, reported more bad news last night, sending shares down 8.7% through 10 a.m. ET.

Analysts following Teladoc forecast the company would report quarterly losses of $0.35 per share on sales of $649.6 million. As it turned out, the news was even worse: Teladoc lost $4.92 per share on $642.4 million in revenue in the second quarter of 2024.

Telemedicine was bad business in Q2

Teladoc's once-rapid growth is history. Q2 sales dropped 2% year over year. Telemedicine per se wasn't the problem (5% growth in this segment was actually OK). Rather, tele-psychological care -- the company's BetterHelp unit -- struggled in Q2, with sales down 9%.

But what really jarred investors wasn't Teladoc's sales, but its massive charge to earnings -- $4.64 per share -- which management attributed "particularly" to "challenges at BetterHelp." That massive noncash asset impairment charge made up 94% of all the losses Teladoc reported in the quarter.

Is Teladoc stock a sell?

So sales are slow. But management says sales growth could resume in the third quarter, and reach the "low single digits to mid-single digits" by the end of this year. At the same time, free cash flow -- while not as robust as it once was -- looks better (at least at first glance). In the first half of 2024, Teladoc generated $97.6 million in operating cash flow against capital spending of only $3.1 million. This suggests that annualized free cash flow could be as much as $189 million this year -- except for one thing.

Teladoc capitalizes its software costs, and when you subtract this number, too, from operating cash flow, it turns out that real FCF was closer to $34.3 million in the first half, implying $68.6 million for the year. On a $1.5 billion market cap, that works out to a price-to-free-cash-flow ratio valuation of 22 -- not too expensive, but not nearly as cheap it appeared at first, with growth so slow.

Teladoc stock remains a sell for me.