Is This Beaten-Down Health-Tech Company a Buy?

Telemedicine and virtual healthcare were supposed to be the next big things in the medical field as COVID-19 accelerated disruption in these verticals. New York-based Teladoc (NYSE: TDOC), a multinational telemedicine, and virtual healthcare company, saw its stock soar during the pandemic, but now it is trading below what it used to in the pre-pandemic days. 

TDOC stock surged from $83 in January 2020 to $293 in February 2021. At the time of writing shares of Teladoc are trading at $36.78. 

Teladoc’s primary services include telehealth, medical opinions, AI and analytics, telehealth devices, and licensable platform services. The company’s solutions cover non-urgent, episodic, chronic, and complicated medical conditions, including diabetes, hypertension, chronic kidney disease, and many more, and the services are provided under the brand names Teladoc, Livongo, and BetterHelp.

Let’s see if it is a good time to buy this beaten-down stock, or is there more pain ahead? 

How did Teladoc perform in Q2?

Teladoc’s last few quarters’ have been given a thumbs down by investors. The worst part about Teladoc’s financials this year was the $6.6 billion non-cash goodwill impairment charge booked in the first quarter of the year. 

It’s an accepted fact that the $18.5 billion (mostly in stock) deal to acquire Livongo in 2020 was not the best deal in terms of valuation. The new $3 billion goodwill impairment charge in the second quarter has made the matters worse. 

Teladoc’s Q2 revenue was up 18% at $592.4 million, compared to $503 million in the year-ago period. While sales grew for Teladoc in Q2, it was lower compared to the 25% growth experienced in the March quarter of 2022. And both these figures are very low compared to the triple-digit growth Teladoc exhibited during the pandemic. 

The impairment loss inflated its net loss, and the company ended up reporting a net loss per share of $19.22 against the net loss per share of $0.86 booked in the second quarter of last year. However, the total visits did increase 31% in the second quarter although this too is 40% lesser in comparison to the same period a year ago.

The company said it is, “… maintaining its previously issued revenue and adjusted EBITDA outlook for the fiscal year ending December 31, 2022. However, based on current trends in the market, management now expects results to be toward the lower end of those ranges.” 

For full-year 2022, the company’s guidance is revenue in the range of $2.4 billion to $2.5 billion and EBITDA of -$41 million to $8 million.

Can TDOC stage a comeback by the end of 2022?

Many investors are of the opinion that Teladoc might be just a pandemic stock. However, there is still a lot of potential in this industry. According to Fortune Business Insights, the global telemedicine market, which was valued at $41.63 billion back in 2019, is expected to grow to $396.76 billion by 2027, growing at a CAGR of 25.8% between 2020 to 2027.

Teladoc is a leading player in this segment, with its US memberships totaling more than 56 million. Its revenues are still growing, albeit at a slower rate. About half of America’s population suffers from chronic diseases, which will be a key driver for Teladoc over time. 

Moreover, two-thirds of the members using Teladoc's Primary360 service, have not seen a doctor in the previous two years. Teladoc also has the option of increasing the number of paid members in the US and increasing its revenue per member.

The stock is currently trading at $37, and the average consensus target on the stock is $53.5, which is a potential upside of around 39%. The company is still not profitable, and the rough ride it is on can last for a while more in the near future. Aggressive investors can look at adding this stock to their portfolio if they are confident about Teladoc in the long run.

Related: How Did This Tech Giant Perform in the June Quarter?