Earlier this month, Teladoc (NASDAQ:TDOC) stole the show when it surged 50% in its first day as a public company. It’s easy to understand the buzz, too, considering the company’s offering lies at the intersection of two of the hottest trends out there right now: healthcare and technology.
In a nutshell, Teladoc’s on-demand healthcare platform lets users instantly connect with health professionals online, whether through a mobile device or computer and via video or phone. With healthcare costs rising rapidly, big-name companies, including PepsiCo (NYSE:PEP) and Bank of America (NYSE:BOA), are hopping on board the telemedicine trend via Teladoc.
Investors seem more than just a little optimistic that more big names will hop on board, considering shares have climbed another 7% since that initial explosion. All in all, TDOC stock was priced at $19 and is now trading for just over $30 — a grand total gain of nearly 60%.
My advice: Proceed with caution.
There’s a difference between identifying a disruptive theme like telemedicine and making a good investment, and a difference between a disruptive technology and a sound business model. And, in the case of Teladoc, the tough reality is that the company’s actual business doesn’t look mature enough to sustain a public entity as anything but a speculative novelty.
It doesn’t take much more than a glance at earnings estimates to see the first red flags. The current year is projected to witness a loss of $1.17 per share, while next year could improve mildly to a loss of 61 cents per share. Of course, lack of profits is hardly anything new for an up-and-coming tech company, and it’s promising that revenue growth is ticking up steadily.
But, the stock seems to be ticking up too much relative to both revenue and rising costs. Because of its recent outsized gains, Teladoc now sports a $1 billion market capitalization, despite the fact that this year’s revenue is only supposed to tally $74 million. At the same time, costs are actually growing even faster than revenue, as the company seems to be fighting an uphill battle with regard to bringing in customers.
The red flags don’t end there, though. Some fairly big regulatory questions have emerged that wall off big chunks of Teladoc’s addressable market until resolved. And, for the cherry on top, Teladoc might be a big player in a disruptive market, but that also puts it in a pretty darn crowded market. Doctor on Demand, for example, is a tough competitor, and more are likely to pop up.
Add it all up and there are a lot of question marks surrounding Teladoc, yet the stock seems to be heading nowhere but up. With that in mind, it’s important to realize that TDOC shares are going to trade on momentum, as opposed to fundamentals, for some time — very similar to the climb we witnessed when Shake Shack (NYSE:SHAK) went public.
That didn’t end well for many investors.
So, unless you’re looking for a day trade, or are hoping for a very long-term payoff, there’s not much to bet on here.