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Teladoc Health: Can Amazon, Walmart, Be Fought off?
Stock Analysis & Ideas

Teladoc Health: Can Amazon, Walmart, Be Fought off?

I am neutral on Teladoc Health, Inc. (TDOC) due to its attractive growth potential being offset by its lofty valuation.

Teladoc aims to use data and technology to improve the overall healthcare experience. This includes providing virtual care and support for various acute and chronic health challenges, equipping clinicians with intuitive software and telehealth devices to facilitate collaboration, and enabling people to improve and better manage their health and chronic conditions.

Teladoc engages with clients from different areas of the overall healthcare ecosystem, which allows the company to produce optimal experiences and outcomes for its clients. (See TDOC stock charts on TipRanks)

Strengths (and Challenges)

Teladoc generates its value primarily by charging a fee against which it connects patients and healthcare professionals through its intuitive interface and large network. Teladoc hopes to continue its growth trajectory by leveraging its worldwide telemedicine network.

This, however, will not be easy, as Teladoc might have to fend off giants like Walmart (WMT) and Amazon (AMZN), who are already working their way into the telemedicine arena.

This threat is not helped by the fact that Teladoc has yet to generate profits, as its primary focus, for now, is to aggressively expand its network and improve service quality.

With increased competition, profitability might become an even tougher challenge – especially since Teladoc does not have the kind of financial capacity that the aforementioned global giants have.

Recent Results

During the second quarter of 2021, Teladoc generated revenue of $503 million, a 109% year-over-year improvement. It also observed over 3.5 million visits during the second quarter, a 28% increase over Q2 of 2020 (which coincided with the first wave of the COVID-19 pandemic).

Owing to aggressive investments, the company’s net loss continues to go up: from $25.7 million during the second quarter of 2020, to $133.8 million during the second quarter of 2021. This increase in net loss was also reflected in the net loss per basic and diluted share, which dropped down to ($0.86) during the second quarter of 2021, from ($0.34) this time last year.

Given the unpredictable trajectory of COVID-19, coupled with the indication of stiff competition, it will be hard to predict how Teladoc’s financials will perform in the coming few months.

Valuation Metrics

While it is growing rapidly, Teladoc’s stock is not cheap. While selling for 10x forward sales is not too high for a rapidly growing stock, the fact that Teladoc is running up significant GAAP losses makes the stock look quite expensive according to other metrics. It is trading at 70.6x forward EBITDA, and 79.5x forward free cash flow, while running up massive net losses.

The bright side is that growth is expected to remain strong in the coming years. Revenue is expected to soar by 84% in 2021, while 2022 revenue is expected to grow by 28.9%.

Net income margins are also improving rapidly, rising from negative 44.3% in 2020, to negative 22.9% this year, to negative 7.4% in 2022.

Wall Street’s Take

From Wall Street analysts, Teladoc earns a Moderate Buy rating consensus, based on 12 Buy ratings, eight Hold ratings, and zero Sell ratings in the past three months. Additionally, the average TDOC price target of $201.79 puts the upside potential at 41.3%.

Summary and Conclusions

Teladoc is growing rapidly, and has an enormous growth runway given the potential for technology to disrupt the healthcare sector.

Overall, the stock is not cheap, but is not outlandishly expensive either.

Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.

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