Since the bear market induced by coronaviruses, there are not too many stocks that have not been mutilated. While the broader markets have recovered some of the losses that started in mid-February, they are still falling significantly: Dow Jones Industrial Average, the S&P 500, and the NASDAQ composite are down 19%, 18% and 17%, respectively.
One notable exception to date this year has been Teladoc Health (NYSE: TDOC). The cloud telehealth specialist has moved in the opposite direction of the main markets, gaining more than 74% since the start of the year, and a 24% increase since the start of the bear market downturn on February 19.
Many investors are asking the same question: With gains like this and such stock price growth, should investors consider adding Teladoc now?
An essential tool for coronaviruses
While the virtual health care company was already experiencing significant adoption before the pandemic, Teladoc’s activities have exploded in the past few weeks and months. Patients were hesitant to go to the doctor’s office for fear of contracting the coronavirus and therefore turned to telehealth solutions (video conversations with doctors). And no company is more widely accepted than Teladoc.
To put that into perspective, Teladoc announced in mid-March that in one week, its daily virtual medical visits had increased by 50% compared to the previous week. What made this measure even more astonishing is that before, the platform had already known a demand compatible with the volumes of peak flu. On Wednesday of this week, visits accelerated to 15,000 a day and to more than 100,000 in a week.
The increase in demand is due in part to guidelines issued by the Centers for Disease Control and the Food and Drug Administration recommending more doctors and patients adopt telemedicine services to help slow the spread of coronavirus .
All of this helps explain why Teladoc’s actions are on fire, but having said that, is it still a buy? Let’s see what recent results reveal.
Recent results and other important measures
While headlines about the coronaviruses certainly added fuel to the fire, it’s not the only thing that propels Teladoc’s stock up. In late February, the company announced fourth-quarter sales that surpassed expectations, pushing the stock up by more than 15% the day after the report.
Revenues increased 27% year over year to $ 157 million, and loss per share of $ 0.26 was significantly improved compared to loss per share of $ 0.35 in the quarter from the previous year. To put this in the context of Wall Street expectations, analysts’ consensus estimates called for revenues of $ 152.95 million and a loss per share of $ 0.33.
It was not only the financial parameters that made investors optimistic. The total number of visits to the Teladoc office increased 44% year-on-year to 1.24 million, easily exceeding its indicative range of 1.0 million to 1.2 million. The company’s subscription-based business model continues to attract patients, with paid members in the United States reaching 36.7 million, up 61% year-over-year, while paid visits to the States United States climbed 104% to 19.3 million.
In this period of economic uncertainty, it should be noted that Teladoc has a formidable balance sheet, with $ 517 million in cash and investments. Although it also carries a debt of $ 440 million, it comes in the form of senior convertible notes. Most of the debt is not due until 2025 and will be exchanged for stocks during the conversion, so that it involves little financial risk.
The stock is by no means cheap. At the close of the market on Thursday, it is trading at 15 times the forward sales (a ratio between 1 and 2 is considered good), so that the investors have clearly cooked an impressive growth in the current share price of Teladoc. To give a little color, analysts expect sales growth of 35% in the current quarter, 32% for the current year and 25% next year (although these estimates do not have not been updated to reflect the increase in telehealth visits caused by the pandemic).
On the positive side, CEO Jason Gorevic still holds more than 2% of the company’s shares, so his interests are clearly aligned with those of investors.
The competition is over there
Although Teladoc is currently the industry leader, it is not without competition. In a recent regulatory dossier, the company ranked MDLive, Doctors on Demand, American Well and Grand Rounds as its main competitors. Although none of these rivals has gained recognition for the name of Teladoc, the area is worth watching.
Another business that could pose a future threat is Amazon.com (NASDAQ: AMZN). Late last year, the company announced plans to launch Amazon Care, a program that gives employees and their families direct access to doctors or nurses via video chat, allowing them to follow in person if necessary. . This benefit became operational in February, and although it is currently only available to Amazon employees, the company is known for developing services in-house, ultimately turning them into a source of revenue, like its cloud provider computing Amazon Web Services.
But the basic question is, “Should you buy Teladoc Health stocks now?” As with so many things, the answer is, “It depends.” It should be noted that I recently added to an existing position because I think the story of growth and opportunity is just as compelling. Once patients have experienced the ease and convenience of telemedicine appointments with their local health care professionals, they are likely to be reluctant to revert to the traditional office visit, unless it is absolutely necessary.
If you are an investor who avoids stocks with high valuations, who does not have the stomach for excessive volatility or who simply seeks to record rapid gains, then Teladoc is probably not the action you should.
If, on the other hand, you are ready to trade a high valuation, proportionate risk and a charge of volatility for the chance of extraordinary gains (and assuming you have an appropriate long-term investment horizon), then Teladoc probably deserves a place in your portfolio.