With its massive price decline so far this year, is now the time to follow the crowd’s changing diagnosis on Teladoc (NYSE:TDOC)? Not so fast. TDOC stock may be down more than 25% year-to-date, and down about 50% from its all-time high of $308 per share. But despite this drop, and the fact it’s been trending again, I don’t see a comeback in the cards.
Instead, I see something else happening. Once the market absorbs the most recent bit of positive news, expect shares to resume their previous downwards trajectory.
Why? In contrast to 2020, there are more factors at play working against the company than for it. As the U.S. has entered “recovery mode” with the Covid-19 outbreak, the company is no longer seeing as epic of a boost in revenue growth. At the same time, competition is on the rise in the telemedicine space. This threatens to further slow down its top-line growth.
Along with this, there are the company’s continued profitability issues. Sales growth has so far not yet translated into lower losses/a move out of the red. In fact, losses are still widening. With these two issues likely to put more pressure on it, and its recent spike more of the “dead cat bounce” variety. Buying Teladoc now is not what the doctor ordered, so to speak. Your best move for now is to stay away.
TDOC Stock and its Post-Earnings Uptick
Starting last month, after an extended slide in price, shares in Teladoc began to pick up once again. This bounce back was extended in late October, thanks to the company’s release of its Q3 2021 earnings report after the close on Oct. 27.
Investors may have responded to these numbers positively. Namely, because, as InvestorPlace’s William White reported Oct. 28, because both sales ($521.66 million) and losses (negative earnings per share, or EPS, of 53 cents) came in ahead of estimates (Wall Street estimated $516.6 million in sales, and negative EPS of 65 cents per share).
But look closer at the details, and it’s unclear why this recent news bodes well for TDOC stock. Although it did beat analyst estimates (which is certainly better than falling short of them), key issues that have beaten down the stock since February remain in play.
Revenue growth continues to slow down. Worse yet, losses doubled quarter-over-quarter. Even as it continues to scale up (nonetheless at a slower pace), its pathway out of the red remains murky. This is especially troubling, as it underscores the impact of rising competition in this space (i.e. margin pressure). As competitive pressures keep climbing, you can expect it to have a further negative effect on Teladoc shares.
It Isn’t Just “Recovery Mode” That’s Affecting its Results
At first glance, you may chalk up this company’s decelerating sales growth (and the declining price of TDOC stock) to one thing: the post-pandemic “reopening.” With healthcare providers loosening their Covid-19 protocols, thanks to the vaccine rollout, the skyrocketing demand seen for telehealth services in mid-2020 took a serious breather.
This explains all of Teladoc’s recent woes, correct? Well, not exactly. As I indicated above, its profitability (or lack thereof) has had a big impact on results. But why is this a more troubling factor than waning pandemic tailwinds?
Simple. While the future effect of waning pandemic tailwinds on sales is likely minimal from here (as the U.S. has more or less reopened), competitive pressures aren’t even close to easing. Where’s this competition coming from? All sides. That is, based on how all types of businesses, from retailing giants to startups, are fighting for market share.
This wouldn’t necessarily be a problem, if telehealth utilization was continuing to climb. Unfortunately, as it stabilizes, Teladoc and its rivals are fighting over what is at risk of becoming a slower-growing market.
The Verdict on Teladoc
Right now, it may seem like investors are warming back up to Teladoc. On the surface, this may seem like a great growth stock to buy. It may be.
Yet, if you dig deeper, it’s clear more issues lie ahead for this pandemic-era hot stock. The “return to normal,” plus competition, ranging from deep-pocketed rivals to scrappy start-ups, points to slowing top-line growth and widening losses continuing into the quarters ahead.
Coming in with an “F” rating in Portfolio Grader, it’s hardly a situation you want to buy into. With its current prognosis calling for another drop in price: steer clear of TDOC stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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