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Unearthing the Potential: Analyzing the Teladoc Health Stock Situation

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The Downward Spiral of TDOC Stock

In a tumultuous market year which saw Teladoc Health (TDOC) plummet by over 33%, investors witnessed a stark contrast between the company’s performance and the S&P 500 Index ($SPX). An epitome of highs and lows, TDOC reached its zenith at a closing value of approximately $295 in February 2021, only to witness a continuous downward slide thereafter, marking a staggering 74% decline in 2022 alone.

Despite its struggle, Cathie Wood of ARK Invest staunchly defended her position by doubling down on this underperforming telehealth giant. With ARK Investment Management emerging as the largest stakeholder in Teladoc Health, commanding a hefty 12.71% ownership of the company, Wood’s resolute confidence contravenes the prevailing pessimistic sentiments regarding the stock.

Decoding the Downtrend: Reasons behind TDOC’s Plunge

As Teladoc Health mirrors the descending trajectory of other erstwhile “stay-at-home” winners like Chegg (CHGG) and Zoom Video Communications (ZM), the driving force behind its downfall is undeniably the deceleration in growth. Illustratively, while TDOC witnessed a revenue surge of 98% and 85.8% in 2020 and 2021 respectively, the momentum took a sharp downturn in 2022 with sales growth plummeting to a mere 18.4%. Moreover, the anticipated revenue growth for the forthcoming years falls conspicuously below the S&P 500 benchmarks, standing at a modest 2.4% in 2024 and 3.9% in 2025, cementing Teladoc’s departure from its erstwhile reputation as a growth stock.

In juxtaposition, Teladoc Health’s consistent financial losses coupled with a substantial stock-based compensation, amounting to a staggering $201.6 million last year, raise pertinent concerns about the company’s fiscal sustainability. Despite the prevalent practice of excluding stock-based compensation from financial evaluations, this maneuver has been rancorously critiqued by industry stalwarts including Warren Buffett, who castigated the practice as an insidious “gift” bestowed upon shareholders.

Long-Term Trajectory of Teladoc Health

Amidst the prevailing downturn, Teladoc Health is propelling forward with a strategic roadmap envisioning annual revenue escalations in the low to mid-single digits over the next three years. In tandem, the company is diligently focused on enhancing cost efficiencies with a projected margin expansion of 50-100 basis points per annum during the stipulated period. Furthermore, Teladoc’s 2025 EBITDA target of at least $425 million underscores its steadfast commitment to eventual profitability.

Continually striving towards GAAP profitability, Teladoc Health anticipates a gradual reduction in stock-based compensation over the forthcoming years, with an expected decline of approximately $20 million this fiscal year, a testament to the company’s conscientious efforts to fortify its financial underpinnings.

Road to Recovery: Evaluating TDOC’s Potential Bottoming

Despite prevailing bearish sentiments, the resounding consensus amongst analysts remains cautiously optimistic with projected price targets indicating an upward trajectory for TDOC stock. With the lowest target price hovering at $16, surpassing the current price levels, and a mean target price of $20.55, delineating a substantial 38% increase from recent closing prices, Teladoc Health’s stock appears poised for a potential recovery.

Exuding tepid sentiments towards Teladoc Health, a slew of neutral appraisals pervades the analyst landscape, with approximately three-quarters of analysts advocating a “Hold” rating or an equivalent stance towards the stock.

Assessment of TDOC’s Valuation

Despite the looming shadows of a growth slowdown, Teladoc Health’s proactive realignment to navigate the evolving macro dynamics instills a glimmer of hope. Boasting a robust virtual care membership base of 90 million, the company capitalizes on lucrative cross-selling opportunities alongside spearheading initiatives in burgeoning sectors like pediatrics and weight management. The incorporation of international expansion further augments Teladoc’s strategic growth outlook.

As TDOC’s next 12-month price-to-sales multiple plummets to 0.93x, juxtaposed against the backdrop of near record lows, and the NTM enterprise value (EV)-to-EBITDA multiple modestly crossing the 8x threshold, the stock’s compelling valuation beckons to discerning investors. Propounding an attractive risk-reward proposition, Teladoc Health, though grappling with growth impediments, emerges as a potent contender awaiting its resurgence.

Upon publication, Mohit Oberoi held positions in TDOC, CHGG, ZM. Information contained in this article is for informational purposes only. Kindly refer to the Barchart Disclosure Policy for comprehensive details.

The opinions expressed herein solely belong to the author and do not necessarily mirror those of Nasdaq, Inc.

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