Shares of Teladoc Health (TDOC 2.09%), a telemedicine specialist, are down 8% year to date. The stock's performance is well below that of broader equities, but not as bad as what investors have become accustomed to in recent years. In fact, over the past six months, Teladoc has been on a bit of a run, gaining 21%. The company continues to struggle as it chases -- so far unsuccessfully -- the kind of success it achieved in 2020 and 2021. But could the telehealth leader finally be on the verge of a strong comeback? Let's find out.
Why are Teladoc's shares rising?
Not a whole lot has happened in Teladoc's favor over the past six months. The company's financial results remain...not great. Third-quarter revenue dipped 2% year over year to $626.4 million. Its loss per share of $0.28 was also worse than the $0.19 it reported in the year-ago period. Perhaps the market expects Teladoc's results to improve, but even then, they might do so only modestly (if at all), given the company's track record over the past few years.
Image source: Getty Images.
Maybe some investors think Teladoc's future is looking up due to leadership changes. The company recently announced it would replace its CFO, Mala Murthy. That follows Teladoc's CEO change last year, with Chuck Divita taking over in June 2024. Another possibility is that Teladoc has finally become attractive at its current levels. The company's forward price-to-sales (P/S) ratio is just 0.6. So, Teladoc may look like it is trading at a deep discount. Perhaps all these factors are at play.
And there is also recent, bullish sentiment from a short seller that jolted the stock. But can Teladoc maintain its recent momentum?
Don't expect a sustained rebound
Teladoc's low forward P/S ratio makes sense given the company's declining revenue. Unless sales forecasts improve significantly, the stock isn't undervalued. The company could, potentially, pounce on several opportunities that might jump-start top-line growth. Let's consider two of them. First, Teladoc has long sought to expand insurance coverage for its BetterHelp virtual therapy service, which the company believes would help boost the segment's performance.
As Divita said during the company's second-quarter earnings conference call, "We see insurance coverage as essential to the stability and growth outlook for BetterHelp, and we believe we can meaningfully scale insurance over time."
NYSE: TDOC
Key Data Points
It is to that end that Teladoc acquired UpLift, a virtual mental health service, earlier this year. UpLift has an ecosystem of more than 1,500 mental health professionals and has deals in place with third-party payers covering 100 million potential patients, but most have yet to opt in for this service. If Teladoc, through marketing efforts, can boost adoption of mental health services on UpLift while securing more insurance coverage for BetterHelp, we could see the company's sales in that area increase significantly. Second, there is international expansion.
Teladoc's international revenue has been growing faster for some time, and if it can establish itself as a leader abroad, it would help improve its performance. However, none of that is likely to save Teladoc, in my view. For one, the company faces a ruthlessly competitive landscape in the virtual care segment. That's why BetterHelp's user base has declined over the past few years, even as the company continues its aggressive marketing efforts.
Insurance coverage might make a difference, but some of Teladoc's biggest competitors already have relationships with insurers, so it's not clear this would be enough to attract enough new members to turn things around. Further, Teladoc's international expansion efforts could eventually encounter the same problems it has in the U.S.: declining revenue per member, high acquisition costs, and low return on marketing spend.
If Teladoc was unable to gain enough traction in the U.S. to become profitable, why would it do significantly better elsewhere? It might be able to, but there is little reason to believe that. These and other factors lead me to believe that even at current levels, Teladoc isn't worth investing in.
