What’s gone right and what is still off about TDOC stock
TDOC stock went “to the moon” for most of 2020 and the early part of 2021.
Today, TDOC stock is trading at a five-year low.
One of the more intriguing pandemic stocks in my opinion was Teladoc Health (NYSE: TDOC). The reason is the simplicity of its business model. I’m all about simplicity and the company had a neatly packaged elevator pitch. It matched patients with a network of physicians via the internet.
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The company’s business was somewhat of a novelty prior to the pandemic but became an essential part of the nation’s healthcare system as doctor’s offices were closed. As these things tend to go, TDOC stock went “to the moon” for most of 2020 and the early part of 2021. But the days of a stock price over $200 are long over. Today, TDOC stock is trading at a five-year low.
In this article, I’m looking at what’s gone right and what is still off about TDOC stock.
Teledoc Has Demonstrated Proof of Concept
There was something about Teladoc Health’s growth during the pandemic that just seemed obvious. That is that there are some non-urgent medical conditions that can be managed remotely. Earlier this year, MarketBeat commented that according to Fortune Business Insights, the global telehealth market will grow 32% annually from 2021 to 2028.
Plus, as the stickiness of remote work (and home delivery) is proving, there are a lot of people who are being more particular about how, and where, they spend their time. So, it’s not surprising that many patients would prefer a virtual consult rather than taking the time and effort to go to a doctor’s office.
With that said, it’s also not surprising that Teladoc continues to see revenue increase on a sequential and year-over-year basis. However, the rate of that growth is slowing and that leads into the primary concern I would have as an investor.
Teledoc Profitability is Still Years Away
The key words in Teladoc’s business model are “some conditions.” The company earns revenue primarily from the subscription fees that its providers pay to the company. If Teladoc earns more revenue from these fees than they pay out in providing care to the patients covered under the plan they make a profit.
This should work to Teladoc’s advantage because many of the reasons for someone to consult with a physician online are of the non-critical variety. And in the company’s most recent earnings report there was evidence that it is earning more per customer than in the prior year. Plus, Teladoc continues to expand its subscriber base.
But profit continues to be elusive. And the bad news in the company’s latest report is that it is forecasting a much larger loss on a per share basis than previously expected. This is creating a bearish pattern of increasing revenues but falling, or in the case of Teladoc non-existent, profits. And by any model I’ve seen that doesn’t look to be changing anytime soon.
Teladoc Has a Business Model with a Low Barrier to Entry
That leads me to my other concern about Teladoc, it’s lack of a defined moat. There doesn’t appear to be much of a unique selling proposition as it relates to Teladoc. And, in fact, MarketBeat shows a long list of competitors who have a business model similar to Teladoc Health.
On the one hand, that could create an opportunity for investors as there will likely be some consolidation in the industry. But the other side of that coin is that would mean Teladoc would have to allocate more of its revenue towards such acquisitions when it’s already spending a considerable amount on research and development.
Teladoc is an Ailing Stock in Search of a Direction
I’ve given you a lot of unwelcome news to consider with TDOC stock and unfortunately, I’m closing this article with a bit more. The consensus forecast of the analysts tracked by MarketBeat gives Teladoc a price target that would be a gain of over 100% from its current price.
But much of that is based on ratings and price targets issued earlier this year. The most recent price targets don’t suggest nearly that level of optimism. And given the current volatility in the market, they seem more realistic.
Still, if you’re not a bag holder from 2021, the potential long-term reward for a small position in TDOC stock may be worth the risk. It just depends on how long you’re willing to wait.