Teladoc Health Looks Like a Series of Red Flags

  • Teladoc Health (TDOC) has declined 68% in 2022 and is not a defensive stock as its sector suggests.
  • There are several warning signs due to the depressed stock price, including its ROE and an overall negative trend in its gross margin.
  • The business model is very unhealthy and I don't see anything to suggest upcoming improvement.
TDOC stock - Teladoc Health Looks Like a Series of Red Flags

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If I had to describe Teladoc Health (NYSE:TDOC) in one word, I’d use unhealthy. And since its shares also look unhealthy right now, I have a very bearish view of TDOC stock.

The technical analysis of Teladoc stock does not show any signs of a rebound, and the fundamentals are so weak that even a child could understand why this stock is one to avoid now.

TDOC Teladoc Health $29.06

Teladoc Health Is Not a Defensive Stock

Why is Teladoc Health not a defensive stock?

There are three main defensive sectors — utilities, consumer staples and healthcare. Teladoc Health is in the healthcare sector. What is also notable is the fact that TDOC stock has a five-year monthly beta of 0.81, which should make it less volatile than the S&P 500. Instead, the S&P 500 has a return of -23% while TDOC stock has returned -68%.

Why this huge difference? The answer is the business model of the firm is very poor performing — to use the earlier term, it is unhealthy.

There must be a logical way to explain why it crashed in 2022. This leads us to a series of warning signs.

Multiple Warning Signs Flashing for Teladoc Health

What are the top warning signs that you should abandon the idea of investing in TDOC stock right now? First, the company has a gross margin trend that has been in long-term decline.

Second, the Altman Z-score of -1.23 is in the distress zone. This implies a bankruptcy possibility in the next two years.

Third, the revenue growth has slowed down over the past 12 months.

Fourth, shareholders have been diluted in the past year, with total shares outstanding growing by 4.3%.

Fifth, the company lowered its 2022 guidance, expecting lower revenue and wider net loss.

The Business Model Needs a Shock

In one of my previous articles on Teladoc Health I mentioned it remains overvalued after its selloff. I added that a mix of reasons such as “annual slowdown in revenue, poor business operations, a long-term decline in gross margins, a stock dilution and that the firm lost money from 2017 to 2021” should continue to put selling pressure on the shares.

Now let’s look at some key financial ratios that I think show TDOC stock is not a bargain.

The net margin is -321.94%. The return on equity is -55.29%. And interest coverage is -108.01. Interest coverage measures a company’s ability to handle its outstanding debt, and it should be both positive and as high as possible to show a healthy situation.

Without a positive shock to the business model, this telemedicine company will probably see worse days ahead and its shares will continue to suffer.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.


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