Why Teladoc Stock is a Strong ‘Buy the Dip’ Candidate

Advertisement

The coronavirus from China outbreak is roiling global financial markets. But it hasn’t hit Teladoc (NYSE:TDOC). Instead, shares of TDOC stock have actually risen more than 60% year-to-date to fresh record highs.

Why TDOC Stock is a Strong 'Buy the Dip' Candidate

Source: Piotr Swat / Shutterstock.com

Why? A few reasons.

First, the coronavirus outbreak has actually been a net positive for Teladoc, since it has energized demand for telehealth services because consumers don’t want to go into a doctor’s office these days and risk getting sick.

Second, Teladoc reported strong fourth-quarter numbers in late February which underscored that consumer demand for telehealth services is burgeoning.

Third, the underlying, fundamental trends here imply that Teladoc is in the first inning of a huge, multi-year healthcare virtualization growth narrative. And, over the next five years, TDOC stock will head much higher.

In other words, Teladoc stock is a long-term winner, with a ton of momentum, and protection from coronavirus headwinds. No wonder TDOC stock is up 60% year-to-date.

So, overall, what’s the investment implication? Shares are richly valued here. I wouldn’t chase the rally, but the stock is a winner — and there’s visible runway for huge gains in the long run.

My advice? I’d buy Teladoc stock on any sizable dips, and stick with it for the next few years.

Virtualized Healthcare is the Future

Telehealth is the future of healthcare because history and logic tell us that any industry that can be virtualized, does get virtualized.

The core idea behind the virtualization trend is simple. Take a physical process, and virtualize it so that consumers can do it from the comfort of their own homes.

Example 1: shopping. Shopping used to be a physical process. Then, Amazon (NASDAQ:AMZN) came along, and said you don’t need malls to shop. You can do it from the comfort of your own home, with just as good outcomes. Consumers migrated rapidly to online shopping, and Amazon became a trillion-dollar company.

Example 2: watching movies. Watching movies used to be a physical process. You had to either go out and buy a DVD, or go to the movie theater. Then, Netflix (NASDAQ:NFLX) came along, and said you don’t need to go anywhere to watch movies. You can stream an infinite library of movies directly from our servers to your homes. Consumers migrated rapidly to streaming TV, and Netflix became a $150 billion company.

That said, the healthcare industry will follow in these footsteps. Today, if you’re sick or need a check-up, chances are that you’re going to physically go to a doctor’s office or urgent care. However, Teladoc is trying to change that, by creating an end-to-end virtualized healthcare platform. In turn, this enables customers to get in-office quality medical treatment from the comfort of their own homes.

So naturally, the implication is that over the next few years, consumers will migrate rapidly to telehealth. And with that, Teladoc will become a very big, very important company.

Big Growth is Happening Now

Telemedicine isn’t a new idea. It’s been around for a while. But, the industry is going through a breakthrough today which will open the floodgates for mainstream adoption over the next few years.

This breakthrough arises from three big emerging trends.

First, robust improvements in communication technology and data analytics are improving the telehealth experience and patient outcomes, so that they are of comparable quality to the in-patient experience and outcomes.

Second, because of these technological improvements, more and more physicians have come to see telehealth as a trusted, appropriate alternative medium for treating patients. As such, physician telehealth participation rates have surged in recent years.

Third, laws and regulations are starting to change in favor of promoting more widespread telehealth adoption. That is, uncertainties and inconsistencies surrounding insurance coverage and reimbursement of telehealth appointments has kept many consumers at bay. But, more and more states are starting to adopt favorable coverage options for telehealth practices. This is most distinctly outlined by the fact that the number of state Medicaid programs offering reimbursement for live telehealth video visits has grown from 7 in 2013, to 29 in 2019.

Collectively, telehealth is on the cusp of a major breakthrough wherein virtualized healthcare will go from niche to norm over the next several years. Why? Because of these three emerging trend.

Teladoc is Positioned to Win

As virtualized healthcare goes from niche to norm, Teladoc is in a great position to turn those macro-tailwinds into huge revenue, profit and stock price gains.

Teladoc offers an end-to-end virtualized healthcare program whose solutions span the full range of acuity and care sites. Most other players in the telehealth space are specialized, and this specialization — while it does have some benefits — will ultimately limit other players from gaining mass adoption. Teladoc, on the other hand, is well positioned to become the all-in-one solution in this market, akin to the Amazon of virtualized healthcare.

Even further, the company will benefit from network effects going forward. That is, Teladoc is a marketplace which matches physicians with patients. The more physicians the platform attracts, the more patients will flock to the platform. The more patients flock to the platform, the more physicians the platform attracts. It’s a positive fly-wheel which ensures that Teladoc, as the industry’s biggest player today, sustains its leadership position for a lot longer.

If so, then this company truly is in the first inning of a huge growth narrative.

In 2016, there were 883.7 million office-based physician visits in the U.S. That said, Teladoc reported 4.1 million U.S. visits in 2019.

This huge delta between where Teladoc is today (4.1 million visits) and the market opportunity (883.7 million office-based visits) gives the company ample runway to sustain 20%-plus revenue growth for a lot longer. Sustained big revenue growth will spark continued positive operating leverage, and pave the path for huge profits at scale.

If all that happens, then TDOC stock will head way higher in the long run.

Bottom Line on TDOC Stock

Teladoc stock is a long-term winner. The valuation is rich today, and the stock is in technically overbought territory. I wouldn’t chase the rally up here.

But, on any sizable dips, buy into this winner. Long term, the virtualized healthcare revolution will push TDOC stock significantly higher.

Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/03/tdoc-stock-strong-buy-the-dip-candidate/.

©2024 InvestorPlace Media, LLC