Stock Analysis & Ideas

Teladoc: Healthier than it Seems?

Teladoc (TDOC) is a virtual healthcare provider in the United States. The company has applied a vertical and horizontal acquisition strategy to claim a stronghold in a hypergrowth industry. I am bullish on the stock.

Most Recent Slump

Teladoc stock had a prolonged price slump that started shortly after its Livongo Health acquisition in 2020. The stock has traded down by more than 25% year-to-date because of its sensitivity to market volatility.

Teladoc’s business is a growing concept in itself, and investors have headed for the hills on growth stocks recently, with the preference of safeguarding their capital in more secure assets amid uncertain monetary policy.

I believe that the recent growth stock sell-off has been overdone due to a herding effect. This is best explained by looking at the stock’s 36.72 relative strength index score, suggesting that investors are overly bearish on the stock.

Earnings & Oppenheimer’s Call

The virtual health enterprise’s fourth-quarter earnings report beat analysts’ earnings estimates with an EPS beat of $0.51. Teladoc showed continued progress, with its average revenue per U.S. paid member increasing to $2.49 from $1.63 in the previous year.

Although Teladoc overproduced on earnings, the market didn’t quite see it as a positive. However, Oppenheimer analyst Michael Wierderhorn suggested that this was a short-term issue and was quoted as saying, “We continue to believe that Teladoc is a high risk-high reward name that will need time to play out for investors.”

I’m firmly in favor of Wiederhorn’s argument, and I believe that the post-earnings drop was part of a broad-based market panic, which wasn’t related to Teladoc’s idiosyncratic risk in any linear way. The market has likely priced in the dodgy monetary sphere by now, and we could see a rebound in growth stocks such as Teladoc once matters in Ukraine find calm.

Valuation

Teladoc stock is tremendously undervalued, with its price to sales and price to book ratios trading at discounts worth 55.88% and 86.99%, respectively.

Analysts expect Teladoc to build on its intrinsic value, with its forward free cash flow reading at 140.89%. In addition, the firm’s year-over-year CapEx growth of 112.08% could yield tangible earnings results in the future, in turn providing support to the valuation claims.

Wall Street’s Price Targets

Turning to Wall Street, Teladoc has a Moderate Buy consensus rating, based on 13 Buys and nine Holds assigned in the past year.

The average Teladoc price target of $102.81 implies 45.3% upside potential.

Concluding Thoughts

Teladoc is a quality investment at the moment. Investors overreacted to economic implications, and Teladoc stock slumped without idiosyncratic justification. I believe we’ll see the stock play into its valuation as long as earnings remain robust.

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