One of the best-performing stocks resulting from the pandemic, Teladoc Health (TDOC), has certainly taken investors on a wild ride this past year.
TDOC stock surged to $308 per share in Q1 of last year. However, since then, shares have plunged to below $70. Thus, over the course of approximately one year, Teladoc investors who bought near the top have lost more than three-quarters of their value on this holding.
Now, there are many reasons for this rapid valuation hit. As the economy reopened and doctor’s offices shifted back to the traditional in-person healthcare model, Teladoc’s revenue outlook took a big hit.
For specific specialties such as mental health, there’s an argument this platform can be successful long term. However, for certain specialties that often require an in-person assessment, telemedicine is one space investors just don’t see a positive outlook in right now.
This recent momentum loss is one that’s had few bullish interruptions. Indeed, it’s been mostly a straight line down for investors, with little reprieve.
Has this selling pressure simply been too much, given Teladoc’s industry-leading platform and technological edge? Time will tell. However, the divergence on this stock among bulls and bears is impressive.
Right now, I’m neutral on Teladoc’s outlook, given these concerns, but also considering the company’s future potential. This is a stock that’s hard to gauge from here.
That said, let’s dive into the bull and bear case on Teladoc, starting with the bullish argument first.
Growth Drivers on the Horizon for Teladoc in Near Future
As we enter into a new year, there are certainly questions about Teladoc’s growth rate. Generally speaking, the global outlook on the COVID-19 pandemic is one that’s starting to shift toward this becoming an endemic. If that happens, and we return to normal sooner than later, many of Teladoc’s growth drivers could continue to be questioned by investors.
That said, Teladoc has made some moves this past year that are noteworthy for investors thinking long term. The telemedicine provider signed a major agreement with Health Care Service Corporation (HCSC), the fifth-largest health insurer in the United States. This agreement is aimed at providing chronic care solutions to the members of HCSC. The CEO of Teladoc termed it as a landmark deal for the company that could fuel growth over the next three years.
Other recent deals include international partnerships with Telefonica, a major Latin American telecom company, in Q2 2021. Millions of individuals in Brazil would have Teladoc’s telemedicine platform available to them. Thus, as far as global growth goes, there’s a lot to like about how Teladoc is positioning itself as a global leader.
Additionally, the company’s Primary360 platform for virtual primary care seems to be picking up momentum as well. The company anticipates bringing in several Fortune 1000 employers with the product in 2022. Another new product named myStrength Complete was also launched, in a bid to drive growth.
As Teladoc continues into new markets and continues to expand on its existing virtual product line, there are bulls who suggest that this company’s long-term outlook remains strong.
There Are Risks for Teladoc
Among the key concerns bears continue to point out with Teladoc is the company’s valuation. Indeed, even after losing more than three-quarters of its market capitalization from its peak, TDOC stock still trades at 6x sales.
For any company, this valuation is rich. Perhaps some hyper-growth tech stocks can maintain such a valuation level, even in this environment. However, with interest rates set to rise, even the most bullish growth investors are forced to re-evaluate their valuation models. Right now, that’s not a good thing for Teladoc.
Should growth slow faster than investors expect, there’s also additional downside potential with this stock. The higher the valuation, the higher the risk investors are taking in the near term. Sure, Teladoc could measure up to its heightened growth expectations over time. However, at least for now, investors appear to be pricing in some sort of discount into this stock.
Thus, it appears the bull and bear case on Teladoc really relies on the time frame investors are assessing this company on. Over the long term, it’s reasonable to make an argument that telemedicine could play a larger role in the healthcare sector.
However, over the near term, questions of just how well TDOC stock will perform relative to other stocks have many investors simply rotating out of these growth names and into more defensive options right now.
Wall Street’s Take
Turning to Wall Street, Teladoc Health comes in as a Moderate Buy. Out of 23 analyst ratings, there are 11 Buys and 12 Holds.
The average Teladoc price target of $143.14 implies 103.9% upside potential. Analyst price targets range from a high of $215 per share to a low of $81 per share.
Bottom Line
Generally, analysts at Wall Street set price targets depending on how a stock is anticipated to perform over the upcoming 12 months. The various aspects they look into include a company’s overall economic conditions and internal projections. Then they crunch their own figures for coming up with their targets.
At this moment, Teladoc’s growth prospects seem to inspire an overall bullish take on this stock. That said, there are those valuation concerns with TDOC stock. Until the market comes to a consensus on what this company’s future earnings are actually worth, this is a stock that could be volatile for some time.
Accordingly, those without a strong opinion on which direction the telemedicine space is likely to move in the intermediate term may want to sit on the sidelines with TDOC stock. This one is hard to gauge, and there are many factors that could take Teladoc higher or lower, depending on the direction of the winds in the market.
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