After its merger with Livongo, Teladoc (NASDAQ:TDOC) has been a volatile but profitable stock. However, after TDOC stock has pulled back, there is a bargain to be had.
As of close on Mar. 8th, shares have fallen more than 40%. That gives us a great opportunity to finally allocate some capital to this name.
What people don’t seem to understand is this: The novel coronavirus was not a one-time, short-term boost to business. Not just for Teladoc, but for a whole host of industries.
Unfortunately, that’s what Wall Street seems to think. At least by the way they are treating these stocks, many of which reported solid earnings with strong outlooks. Wall Street is acting like Covid-19 was a big, one-time event that won’t be replicated in the future (hopefully) and that business will revert back to pre-coronavirus levels.
In reality though, these industries were propelled into the future, and in some cases, by several years. Telehealth is one of those industries, and Teladoc is in a prime position to benefit from it.
Breaking Down Teladoc
Teladoc now has a massive grip in the telehealth market. When you break down the latter, it really comes down to two things: cost and convenience.
Simply put, it’s cheaper and more convenient, and in most cases, it’s more efficient. Telehealth isn’t superior in every medical instance, but it is in enough that it’s worthwhile. When that sort of catalyst is introduced — like streaming video or video-conferencing — there’s little motivation to go back to the way things were.
Why? Because it’s more expensive, less convenient and more inefficient!
Teladoc offers various medical services. Its Get Care Now unit offers general medical advice. Specifically, it offers 24/7 non-emergency care for illnesses like the common cold, the flu, sinus infections, allergies and more.
These are with board-certified and state-licensed doctors, so it’s not like some random person doing their best here — it’s a real doctor or medical professional.
The company also offers mental health, wellness care (like nutrition, tobacco cessation, neck and back care, etc.), dermatology, and specialist and expert advice.
In other words, Teladoc is an all-encompassing telehealth portal, fusing technology with the medical field and maximizing the synergies within. It’s one of the reasons this will be a top stock over the next five years. However, I believe consensus estimates may be too conservative.
Analysts expect $1.98 billion in sales this year and $2.6 billion next year. Those are fine, really. But two-year forward estimates call for revenue growth of “just” 25.7%, to $3.27 billion.
While $3.27 billion in sales would be pretty impressive, I wouldn’t be surprised if that ends up being conservative. Why? It also circles back to cost, convenience and efficiency — no one wants those to reverse.
Bottom Line on TDOC Stock
Even if those estimates do end up coming in-line, we’re not talking about a horrible price to pay. At current levels, TDOC stock trades at a reasonable 10 times forward revenue and about 8 times two-year forward revenue.
I personally don’t find that valuation too tough to swallow, although the recent dip certainly helps.
We’ve already seen a huge de-risking in the stock as shares are down massively off the high. If the bottom is down 45% or 52% from the high, in the long run, it simply doesn’t matter.
We’re not here to pick bottoms. Instead, we’re searching out strong companies with promising secular growth and hoping to pay a reasonable price for those businesses. TDOC stock seems to be offering us an opportunity down here.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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