Teladoc Health (TDOC +0.48%), the famed telemedicine specialist that rose to prominence in the early pandemic years, is not performing nearly as well as it once did. Over the past three years, the company's financial results have been disappointing -- at best -- and its stock price has plummeted.
Is the market too pessimistic about the telehealth company's prospects? Teladoc's shares could be a steal at current levels if that's the case. Let's find out whether it's worth investing in the company today.
From bad to worse
First, it is worth pointing out exactly what has happened to Teladoc since 2022. True, the initial tailwind it experienced in 2020 due to government-imposed lockdown orders was never going to last, but there is more to the story. Teladoc faced stiff competition from which it could not meaningfully differentiate itself due to a lack of a competitive advantage. Telemedicine is extremely convenient: It offers basic medical care from the comfort of one's home.
Many other companies also wanted a piece of that pie. Consider Teladoc's BetterHelp segment, a virtual therapy unit that was once its biggest growth driver. Even with the rise in mental health issues we experienced during the outbreak, other virtual care providers took significant market share in this niche, undercutting Teladoc's efforts. So, the company's revenue growth within BetterHelp (and elsewhere) slowed considerably.
Further, Teladoc remains unprofitable. What's more, the company incurred significant losses along the way, although those were sometimes due to impairment charges. The inability to grow its revenue at a good clip while turning red on the bottom line is a bad combination for any company.
TDOC Revenue (Quarterly) data by YCharts
Some opportunities for growth
The good news for Teladoc is that the telemedicine market likely hasn't peaked. Analysts continue to predict that this space will grow at a good clip through the end of the decade and likely well beyond that. Telehealth isn't just convenient. It can help cut overhead costs, which are then passed on to customers. Consider BetterHelp again, a virtual service allowing therapists to practice from their homes instead of renting expensive office spaces.
BetterHelp offers competitive prices partly for this reason. So, the industry is on a growth path. The question is whether Teladoc can carve out a niche for itself that will allow it to grow revenue at a good rate and become profitable. Here is how the company could do it.
NYSE: TDOC
Key Data Points
First, there remains a massive opportunity for Teladoc to cross-sell its products to existing clients. The company's general medical service, integrated care, ended the third quarter with 93.9 million members in the U.S., an increase of 4% year over year.
That's a massive ecosystem of patients, the overwhelming majority of whom aren't using its other services. Patients on BetterHelp and chronic care enrollment were 398,000 and 1.2 million, respectively, as of the third quarter. If Teladoc can make significant progress here, the company's total visits and revenue will increase meaningfully.
Second, Teladoc could ramp up its international expansion plans. The company's international revenue accounts for a decent percentage of total revenue and is growing faster. In the third quarter, international revenue came in at $104.3 million, 15% higher than the year-ago period. Teladoc's total top line declined 3% year over year to $640.5 million. If the company can maintain this momentum in international markets, that could lift top-line growth.
Third, Teladoc is looking to get insurance coverage for BetterHelp, which would be a meaningful boost that will likely attract many more patients to the platform and increase its revenue.
Is Teladoc stock cheap?
Teladoc's shares recently jumped after Citron Research, an online investment newsletter, claimed the market is not fairly valuing the telehealth company given its increasing free cash flow, investments in technology (including artificial intelligence), and efforts to cut costs. Teladoc currently trades at 10.6 times trailing free cash flow, which does seem reasonable.
TDOC Price to Free Cash Flow data by YCharts
However, in my view, and despite Citron Research's rave reviews, Teladoc still has a lot of work to do to become an attractive stock. It's cheap right now, because it has not performed well recently and doesn't yet have a clear path to profitability. Corporations with far more attractive prospects command higher valuations. Teladoc's initiatives could pay off and turn the company into an attractive stock again, but it's not clear that this will happen.
Will BetterHelp secure coverage? Will the company succeed in cross-selling products when it has failed to do so in the past few years? Will it be able to keep costs down as it ramps up international expansion efforts? Until Teladoc can address these (and other) concerns, only investors comfortable with risk and volatility should consider buying the company's shares.
