Teladoc Health (NYSE:TDOC) stock dramatically reset investor expectations when it posted quarterly results late last month. The nearly debt-free firm trades at a fraction of its book value of 0.59 times price-to-book. Its price-to-sales ratio of 2.68 times also more than discounts the health information service firm from future disappointments.
Competition is intensifying from here and may hurt Teladoc’s growth prospects. Still, the company has momentum for its direct-to-consumer segment. Markets are ignoring its customer growth for its mental health and chronic care units. Teladoc has a glimmer of upside despite the revised outlook.
In the first quarter, Teladoc recorded a $41.58 a share net loss. This is a non-cash goodwill impairment of $6.6 billion, or $41.11 a share. On its conference call, Teladoc said that its legacy organization, through its Livongo acquisition at $37 billion, faces head-to-head competition. Its single-point solutions face pressure from many point solutions in the market.
Still, the company offers multi-condition, full whole-person care solutions. The company is integrating Livongo products into that whole-person care experience. Unfortunately, Teladoc is behind schedule in implementing that plan. The longer it delays the solution, the more impatient investors become in waiting for growth to accelerate.
Teladoc’s customers are responding well to its multiproduct sales. Primary360 product is promising. Although it is still early in the process of ramping up Primary360, the product will become a more significant contributor to growth in 2023 and 2024.
Chief Executive Officer Jason Gorevic said that Primary360 is seeing better traction than Teladoc expected. It has very large opportunities. As customers sign up for the full suite of products, margins will expand. Conversely, BetterHelp hurt the company’s results. In the last few weeks, Teladoc experienced a lower-than-expected yield on marketing spending.
Investors did not expect BetterHelp’s weakening momentum, which hurt overall results. Teladoc might have benefited from unusually strong interest as it exited 2021 and early 2022. For example, paid search advertising related to the keywords “online therapy” did not work as well.
Furthermore, some providers are suspending support for the prescription of a controlled substance. Shareholders may bet that health providers cannot take advantage of the suspension of various regulations related to the national health emergency. When governments renew their support for people in need of controlled substances, Teladoc’s BetterHelp unit will rebound.
Analysts recently downgraded their stock rating on Teladoc. They did not change their upside target, which averages around $57, according to Tipranks. The price target ranges from $30.00 to $141.00. In a 10-year discounted cash flow EBITDA exit model, readers will conclude that TDOC stock is on sale.
The fair value is over $50 and assumes that the firm will grow its revenue by at least 20% annually. If its history is an indicator of performance, Teladoc will grow faster than that rate. Consider taking a small starter position in this firm. When the company posts a strong quarter, then investors should commit to a bigger position.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.