What’s Next For Teladoc Stock After An 89% Fall In Three Years?

Despite a 5% year-to-date fall in Teladoc stock (NASDAQ
NDAQ
: TDOC), a telemedicine and virtual healthcare company, underperforming the broader S&P500 index returns, of up 16%, we believe it is better avoided. Looking at a slightly longer term, TDOC stock is down 89% from levels seen in late 2020. This can be attributed to 1. the company’s P/S ratio falling 95% to 1.5x trailing revenues versus 30.9x in 2020, partly offset by 2. a 126% rise in Teladoc’s revenue to $2.5 billion, and 3. a 3% fall in its average total shares outstanding to 164 million. Our dashboard on Why Teladoc Stock Moved has more details.

The rise in Teladoc’s revenue in recent years can primarily be attributed to the high demand for telemedicine companies during the pandemic as people avoided venturing out of their homes. The total customer base has surged from around 56 million in 2019, before the pandemic, to 80 million in 2022. Although the company continues to grow sales, it’s still a loss-making company. The company’s operating margin has contracted from -17% in 2019 to -271% in the last twelve months. While the company was loss-making before and after the pandemic, a $13.4 billion goodwill impairment charge recorded in 2022 resulted in a significant decline in the operating margin metric. Our Teladoc Operating Income Comparison dashboard has more details.

Looking at the stock performance, TDOC saw its stock trading at around $295 in Feb 2021 (its all-time high), and it fell to $33 in late June 2022, just before the Fed started increasing rates. It is now 30% below that level, while the broader S&P 500 has gained about 17% during this period. This underperformance of TDOC stock since 2021 can be attributed to the opening up of economies post Covid-19 restrictions. Investors are worried that the rise in Teladoc’s sales was pandemic related, and now more people will visit doctors rather than a virtual meeting.

Returning to the pre-inflation shock level of $295 (seen in Feb 2021) means that TDOC stock will have to gain 1200% from here. While this looks very unlikely, TDOC stock optically appears attractive from a valuation perspective. It is trading at 1.6x revenues, compared to its last five-year average of a little over 28x. Our Teladoc Valuation Ratios Comparison dashboard has more details. Investors rewarded TDOC with a very high valuation multiple during the pandemic, but such high levels are unlikely to return now. The company has a long road ahead to reduce its customer acquisition and other costs and move to profitability. We don’t expect any meaningful growth in TDOC in the near term.

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