Stock Analysis & Ideas

Investors Uncertain about Teladoc’s Health

Growth investors are always on the lookout for innovation, but in some sectors, innovation is harder to come by.

The healthcare sector has been notoriously difficult for tech companies to penetrate in recent years. A business model that really hasn’t changed for centuries appears ripe for innovation, and the pandemic may have provided the catalyst needed for such growth.

Virtual healthcare provider Teladoc (TDOC) is on a mission to take advantage of this catalyst. The company has provided some intriguing data to suggest this movement is a lasting one. The company’s CEO Jason Gorevic recently said as much. (See Teladoc stock analysis on TipRanks)

Additionally, thought leaders in the growth investing space such as Cathie Wood remain highly bullish on Teladoc. Currently, TDOC stock takes top spot in Ms. Wood’s Ark Genomic Revolution ETF (ARKG).

With Cathie Wood as a big believer, what could go wrong with Teladoc?

Let’s take a deeper look at why growth investors are increasingly looking to buy the dip on this name.

TDOC Stock Pricing in Some Serious Revenue Growth Deceleration

It is important for all investors looking at TDOC stock to assess the company’s financials. According to the company’s recent earnings report, on balance, things don’t look too bad.

Teladoc delivered Q1 revenue growth of 151% year-over-year. Growth investors like Cathie Wood are probably salivating reading that top line highlight from this earnings report.

That said, the company’s stock price did fall significantly on the release. Indeed, investors appeared to be more concerned with the forward guidance given by Teladoc moving forward. The company projected out mid-range guidance of $2 billion in revenue.

While that would provide year-over-year revenue growth of approximately 82%, it appears the market was hoping for more. Such is the state of the market these days.

Accordingly, the company also reported it expects paid membership levels between 52-53 million on a forward-looking basis. While this segment grew by 20% year-over-year to 51.5 million, that’s not necessarily the healthy growth outlook many investors had planned for.

So, Teladoc is fast-growing company that isn’t growing fast enough for investors. These numbers are added to investors’ fears about the negative impacts the pandemic reopening could have on Teladoc’s business. Put together, things don’t look so great for TDOC stock over the near-term.

Can Teladoc Continue Its Lightning-Fast Growth Rate for Much Longer?

A slower growth rate looking forward is not good for any stock. However, in the case of hyper-growth plays like Teladoc, such an outlook is potentially much more damaging to near-term results.

Indeed, the performance of TDOC stock since mid-February is downright terrible. The company’s share price has more than halved from its peak, at the time of writing. It appears most of this downside momentum is related to bearish sentiment related to the post-pandemic reopening.

As we approach herd-immunity level (estimated to be somewhere around 75% of the population fully vaccinated), more doctors’ offices will reopen for in-person visits. Accordingly, there may be a significant decline in the number of providers choosing to provide virtual care in such an environment.

Of course, for some specialties like mental health, virtual visits can fully replace physical in-person checkups. Teladoc has done its part to grow its integrated mental health service to handle increased volume in this line of business.

However, the question many providers have right now is whether virtual visits duplicate care, or effectively eliminate in-person visits. For example, someone who chooses a video visit for a bump, burn, or scrape, and then needs to be seen in-person, may have been better-suited by one in-person visit.

If providers switch away from virtual care offerings en masse, there will be a real problem with the growth thesis underpinning TDOC stock right now. Such is the concern being priced in with this stock at the moment.

What Analysts Are Saying About TDOC Stock

According to TipRanks’ analyst rating consensus, TDOC stock comes in as a Moderate Buy. Out of 19 analyst ratings, there are 13 Buy recommendations and 7 Hold recommendations.

As for price targets, the Teladoc average analyst price target is $235.11. Analyst price targets range from a low of $162.00 per share to a high of $300.00 per share.

Bottom Line

Certainly, there’s significant reason to be bullish on the long-term potential of Teladoc. This is really a play that has become polarizing of late. Investors often find themselves on either side of a fence dividing ultra-bullish investors with extremely-bearish counterparts.

Right now, bearish sentiment is taking hold of Teladoc stock. There are reasons for this, and bulls ought to be aware of the downside risks of any pandemic-juiced growth stock today.

However, if the future really is as good as Teladoc would like us to believe, perhaps this selloff is transitory. If that’s the case, this stock could be a great buying opportunity.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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