Teladoc Health (TDOC) is a global leader in telemedicine. It offers a rapidly growing disruptive approach to healthcare that is slashing costs and wait times while also improving medical access for millions of patients. TDOC’s platform provides 24 hour on-demand healthcare, using internet and mobile application technology that combine video and phone conferences with medical care providers, with remote patient monitoring programs.
The main value for TDOC comes from fees it generates by providing access to its user-friendly interface and large network that matches physicians and healthcare professionals with patients. Similarly to how social media and e-commerce giants are able to leverage their massive networks to drive pricing power and additional growth, TDOC hopes to continue doing the same with its leading global telemedicine network.
Thus far, the results have been terrific as revenue has exploded by over 3,000% since 2015 and the stock has generated total returns that exceed the S&P 500 by over three-to-one over that span. (See Teladoc stock charts on TipRanks)
Teladoc Facing Headwinds
However, the company has run into some recent headwinds: mega-cap companies like Amazon (AMZN) and Walmart (WMT) who boast enormous networks of their own have signaled an entry into the telemedicine space, as has existing healthcare giant CVS Health (CVS).
Furthermore, TDOC is not even profitable yet, as it continues to invest aggressively in growing its network and improving the number and quality of its services. With the increase in competition in the space, growth will become more challenging and profit margins will be pressured, making it even harder to generate positive net earnings. Given that TDOC lacks the deep pockets of these three rivals, it may have difficulty keeping up, in terms of innovation and competitive pricing.
Valuation Metrics
Despite these headwinds, TDOC still possesses a significant head start in the space, giving it a significant edge to leverage in terms of consumer data and network. Furthermore, its valuation has recently become much more attractive, as its share price has been cut in half from its highs reached earlier this year. The price dropped despite the company’s continued ability to generate strong topline growth numbers.
While the Forward EV/EBITDA is still sky-high at 84x, it is significantly lower than it was a year ago (at 160x), and should only go lower from here. EBITDA is expected to grow by a whopping 112% in 2021 and an additional 55% in 2022. Revenue growth will be less impressive, but is still expected to be very strong at 84% this year and 29% in 2022.
Given that the EV/Forward Revenue is a mere 11.8x at current prices, this implies that the stock is really not that expensive. In fact, the forward price to cash flow per share is 63.3x, which is not all that high, given that cash flow per share is expected to grow by 351% this year and 135% in 2022.
Wall Street’s Take
From Wall Street analysts, TDOC earns a Moderate Buy analyst consensus based on 13 Buy ratings, 7 Hold ratings, and 0 Sell ratings in the past 3 months. Additionally, the average Teladoc price target of $231.26 puts the upside potential at 46.13%.
Summary and Conclusions
TDOC is facing significant headwinds right now, given the entry of several deep-pocketed heavyweight companies into the telemedicine space. As a result, the market has soured considerably on the company’s prospects by punishing the stock price to the tune of a greater than 50% decline over the past few months alone.
That said, Teladoc still has a lot going for it, with a significant head start in terms of industry-specific patient data collection and network effect. Furthermore, it already has a foothold in countries across the globe. Millions of patients and providers are already familiar and comfortable with its application, making them less likely to switch to a competitor.
Last but not least, the stock’s price looks potentially compelling as a growth play and analysts are overall bullish on the company.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
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.
