One of the top performing stocks in 2020 and 2021 is near an eight-year low.
shares of Teladoc Health (TDOC 1.68%) It has fallen sharply from the highest levels set during the COVID-19 pandemic emergency. The stock price is down about 95% from the high it set a few years ago, and the board has finally taken some action on the issue.
On April 5, Teladoc's board of directors announced to investors that Jason Gorevic, who has served as CEO since 2009, will be retiring effective immediately. The announcement did not include any comments from Gorevic, and the board has not selected a permanent successor.
Are once-high-priced healthcare stocks a bargain now that they're down a fraction of their previous highs and new management is expected? Let's compare and examine its strengths and challenges.
Why buy Teladoc Health stock?
At the end of 2023, approximately 90 million Americans had access to one or more of Teladoc's products and services. This makes the company the most accessible provider of telehealth services in the country.
As the most accessible telemedicine provider in the country, Teladoc could benefit from network effect advantages. In theory, Teladoc Health's large member base makes it an attractive partner for healthcare providers seeking access to large numbers of patients.
In addition to primary care, Teladoc has large chronic care and mental health businesses. Because the company has a large patient population in multiple specialties, it generates a large amount of data about which interventions are most effective. This trove of data could give the company a long-term advantage over smaller telehealth service providers.
Finally, Teladoc Health's revenue is growing. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 33% to $328 million last year.
Reasons to be nervous about Teladoc Health stock
Tinkering with the edges with the help of data repositories will likely help providers make better recommendations. But before you get too excited about Teladoc's data advantage, it's important to remember that there are many low-hanging fruit when it comes to lowering healthcare costs. For example, the majority of American adults don't even bother getting their annual flu shot.
Teladoc was founded more than 20 years ago and still does not generate profits in accordance with Generally Accepted Accounting Principles (GAAP). The company lost $220 million last year and is expected to post a significant GAAP loss this year.
It is not uncommon for fast-growing companies in new industries to lose money while gaining scale and market share. Unfortunately, Teladoc's era of rapid growth is over. At the midpoint of the guidance range management indicated in February, this year's total revenue is expected to increase by 3.2%.
Teladoc also provided a three-year outlook in which sales are expected to grow at a low to mid-single digit rate per year. This outlook does not include GAAP revenue forecasts.
Teladoc derives 88% of its revenue from access fees, but raising fees to realize steadily growing profits may be more difficult than investors realize. Although the company's customer list is huge, these members don't seem to value their access very highly.
As of early 2023, 80 million Americans had access to one or more of the company's products or services, but less than one in four used Teladoc to visit a provider. In 2023, the company completed just 18.4 million telehealth visits.
Buy, sell or hold?
Sudden CEO departures rarely end well, but that's not the only reason I'm not betting on Teladoc Health stock right now. The company has had enough time to show evidence of a competitive advantage in the form of profits after the coronavirus pandemic, so the stock doesn't look like a buy on the spur of the moment.
Teladoc doesn't report net income on a GAAP basis, but it could be headed in that direction. The company reported free cash flow of $193 million last year, and management expects that number to reach a range of $210 million to $240 million in 2024.
This shabby stock isn't one to buy right now, but investors who already own the stock probably want to wait and see if the trend toward sustainable profitability continues.
Cory Renauer has no position in any stocks mentioned. The Motley Fool owns a position in and recommends Teladoc Health. The Motley Fool has a disclosure policy.
