Virtual healthcare company Teladoc Health, Inc. (TDOC) in Dallas, Tex., offers expert medical services, behavioral health solutions, and various telehealth solutions under the Teladoc, Advance Medical, Livongo, Best Doctors, BetterHelp, and HealthiestYou brand names. Shares of TDOC have dipped 25% so far this year and 8.6% over the past month. This price slump can be attributed primarily to TDOC’s wider-than-expected operational losses in the second quarter of 2021.

Although the company reported strong revenue growth in the quarter, its total expenses and losses increased significantly year-over-year.

While the launch of its “myStrength Complete” personalized mental health service and strategic agreement with HCSC to offer its suite of whole-person chronic care solutions could strengthen its position in the telehealth industry, its bleak growth prospects and slim profit margin could continue concerning investors. In addition, in a highly competitive environment, the stock may not be able to sustain its high valuation.

Click here to checkout our Healthcare Sector Report for 2021

Here is what we think could influence TDOC’s performance in the coming months:

Competition in the Burgeoning Telehealth Market

The global telehealth market is expected to reach $559.52 billion by 2027, achieving a 25.2% CAGR from 2020. The rising prevalence of chronic diseases and the growing  geriatric population have resulted in the increasing  adoption of digital health platforms. In fact, the COVID-19 pandemic further bolstered the need for telehealth services. Numerous healthcare providers are focusing on launching new platforms and expanding their telehealth offerings to keep pace with the high demand. Key players, like American Well Corp. (AMWL) and Medtronic Plc (MDT), have been increasing their market presence significantly by introducing new products through innovation and technological advancements. With competition heating up, TDOC may struggle to grow its market share in the coming months.

Unimpressive Quarterly Performance

TDOC’s revenue rose 109% year-over-year to $503 million in the second quarter ended June 30, 2021. But the company’s visit-fee revenue under its international segment declined 63% from its year-ago value to $130,000. Furthermore,  its U.S. paid membership grew just 1% year-over-year to 52 million. TDOC’s net loss expanded 420.6% from the prior-year quarter to $133.8 million, due primarily to higher stock-based compensation expense and the amortization of intangible assets from its Livongo and InTouch Health acquisitions. Its loss per share came in at $0.86 for this quarter, compared to $0.34 in the prior-year period. Furthermore, the company’s loss from operations increased 999.7% from its year-ago value to $78.95 million over this period.

Weak Profit Margin

TDOC’s 0.2% trailing-12-month asset turnover ratio  is 53% lower than the 0.4% industry average. In addition, its net income margin, ROE, ROA, and ROTC stood at negative 46.9%, 8.8%, 4.3%, and 3.5%, respectively. Also, the company’s 0.4% trailing-12-month CAPEX/Sales  is 89.9% lower than the 4.1% industry average. TDOC’s trailing-12-month cash from operations came in at a negative $48.55 million.

Stretched Valuation

In terms of forward EV/EBITDA, TDOC is currently trading at 90.68x, which is 461.6% higher than the 16.15x industry average. In addition, its 14.82 trailing-12-month EV/Sales ratio  is 97.6% higher than the 7.50 industry average. Also, TDOC’s 118.28x forward Price/Cash Flow ratio  is 526.8% higher than the 18.87x industry average. And the stock’s 11.86 trailing-12-month Price/Sales multiple  compares with the 7.82 industry average.

Bleak Growth Estimates

TDOC’s revenue is expected to increase 82.3% for the next quarter, ending September 2021, and 29.1% in its fiscal year 2022. However, its EPS is expected to remain negative in 2021 and 2022. Analysts expect the company’s EPS to decline 64.7% in the current quarter and 16.3% next quarter. Also, TDOC’s EPS is expected to decrease at a 3.1% rate  per annum over the next five years. Also,  the stock has an unimpressive earnings surprise history; it failed to beat the consensus EPS estimates in each of the trailing four quarters.

POWR Ratings Reflect Bleak Prospects

TDOC has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TDOC has a D grade for Quality. The stock’s lower-than-industry asset turnover ratio justifies the grade.

The company has a C Momentum grade, which is consistent with its price returns over the past month.

Also, in terms of Value Grade, TDOC has a D. The stock’s higher-than-industry EV/Sales ratio is consistent with the grade.

Beyond what we’ve highlighted above, one can check out additional TDOC ratings for Growth, Stability, and Sentiment here. The stock is ranked last of the 81 stocks in the C-rated Medical – Services industry.

Click here to view the top-rated stocks in the Medical – Services industry.

Bottom Line

TDOC’s widening losses and declining visit fee revenues in its  last reported quarter have caused its share price to plummet lately. Furthermore, its stretched valuation multiples and weak growth attributes at a time when a slew of competitors are entering the telehealth market could make investors nervous about the stock’s prospects. Thus, we think TDOC is best avoided now.

Click here to checkout our Healthcare Sector Report for 2021

TDOC shares rose $0.14 (+0.09%) in premarket trading Tuesday. Year-to-date, TDOC has declined -24.95%, versus a 17.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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