Once upon a time, Teladoc Salut (TDOC -3.62%) was a rising star for investors. Stocks were widely seen as a good way to benefit from the changing dynamics resulting from the pandemic.
Now, it’s a very different scenario. Teladoc’s stock price has fallen more than 85% below the high it set in early 2021. Many investors threw in the towel on the telemedicine stock.
But could a rebound be likely? These are the bull and bear cases for Teladoc shares.
Bull case: I still really like it
Keith Speights: Many investors focus entirely on Teladoc’s negatives: the falling stock, continued heavy losses, slowing growth, etc. However, there is still a lot to like. I think the positives outweigh its negatives.
Of course, income growth is slowing. But that’s to be expected after the rise of COVID-19. Teladoc actually offered several bright spots in its second-quarter results that investors seemed to ignore, notably impressive growth in membership and visits.
Much attention has been paid to Teladoc’s large write-downs due to its acquisition of Livongo Health. What has been overlooked, however, is that the company continues to move toward profitability outside of these accounting moves.
Most importantly, however, Teladoc remains the first player in a market with strong long-term prospects. No other telehealth company can claim half the Fortune 500 as clients or the reach of virtual health products that Teladoc can. The current market cap of about $6.6 billion doesn’t come close to reflecting the potential the company holds.
Bear case: Teladoc’s execution does not inspire confidence
Keith Noonan: Teladoc’s $18.5 billion acquisition of Livongo Health has been a financial success that has destroyed billions in shareholder value and created uncertainty around the company’s prospects. In some respects, management also hasn’t done a great job of shaping investor expectations and providing accurate guidance and business updates.
Although the company warned investors earlier this year that a big revaluation in Livongo’s value was coming, the actual declines have been much larger than many expected. The actual performance of the business has fallen well short of previous targets. This creates a situation where it is more difficult to trust what the team is saying about the current state of the business and what is happening.
Teladoc has taken roughly $9.6 billion in impairment charges in the first half of this year, and the development looks even worse against the backdrop of slowing sales growth. Revenue grew just 18% year over year in the second quarter, and cash flow has turned negative again in the first half of the year. Management said full-year revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) would likely come in at the low end of its guidance range.
While telehealth is a market that still holds long-term promise, Teladoc’s strategic decisions and business performance have left much to be desired of late. Stocks have already experienced massive pullbacks. It has ways to rise above current levels, but the company’s questionable moat and weak execution put the stock at risk of continued underperformance.
What will it take for the bulls to prevail?
Bears are surely running rampant on Teladoc’s stock right now. What will it take for the bulls to prevail? A few consecutive quarters of solid growth that beats expectations would go a long way toward renewing investor confidence in the company and its management. There could yet be a fairytale ending for this toppled stock.