Teladoc Health (NYSE: TDOC) was a huge winner when the pandemic broke out in early 2020.
This is a business that provides virtual healthcare services that enable patients to consult health providers over the phone or through video chat. You can consult a physician from the safety and comfort of your home.
Honestly, there could hardly have been a better business to be in during a pandemic. Nobody wanted to go to the doctor’s office and be surrounded by sick people.
Not surprisingly, the company’s stock more than doubled between January 1, 2020, and early April 2020.
I weighed in on Teladoc’s stock back then and was not optimistic about its future prospects.
My official conclusion was this: “Looking forward… I don’t need a crystal ball to know that now is definitely not the time to be buying shares of… Teladoc.”
My reasoning was straightforward…
First, I believed that the surge in patient demand that Teladoc was then experiencing was not going to be permanent. I had faith that life would get back to something closer to normal and that people would prefer going to see their doctors in person again.
Second, I believed that the valuation of Teladoc’s stock was ridiculously high. My view was that far too much optimism was priced into Teladoc’s stock.
Subsequently, I’ve been proven correct.
Since I published that analysis on April 9, 2020, Teladoc’s shares have dropped from $150 per share to under $30.
That was a brutal 80%-plus decline.
Which makes me wonder…
While the market got way too optimistic about Teladoc during the pandemic, perhaps it has now gotten too pessimistic?
We repeatedly see that hot stocks that crash often become good bargains after investors have given up on them. Tech stocks after the internet bubble collapsed is one obvious example. American banks and homebuilders after the 2008 financial crisis is another.
A quick look at Teladoc’s price-to-sales valuation certainly shows a dramatic change in how the market values this business.
After trading at a gaudy 32 times sales at one point in 2020, the stock has dropped to trading at just two times sales.
That is a massive revaluation!
But does that necessarily mean the stock is a bargain?
Teladoc’s sales are growing. The company’s projected sales are $2.4 billion for 2022 and $2.7 billion for 2023.
That suggests a 20% increase in sales in 2022 and another 12.5% of growth in 2023.
Those are good numbers, but the rate of growth is slowing quickly. Between 2020 and 2021, the increase was a much more dramatic 100%.
Another problem is that even with continued growth, analysts still don’t expect the company to turn a profit in 2022 or 2023.
I’m not against investing in early-stage, high-growth companies that aren’t turning a profit (provided I’m convinced that they have years exceptional growth ahead). But my concern with Teladoc is that I’m not sure how fast or for how long sales growth will continue.
The sales trend appears to be flattening quickly. And if I’m not convinced that Teladoc is going to keep posting strong growth, then I certainly can’t say with any conviction that a still-unprofitable Teladoc is a bargain at current prices.
In 2020, it was easy to see that Teladoc was massively overvalued.
Despite the 80% decline in share price since then, The Value Meter today rates Teladoc as “Appropriately Valued.”
