Is Teladoc a Bad-News Buy?

Teladoc Health’s (TDOC -17.67%) woes aren’t over. Shares of the telemedicine giant have dropped 23% from its announcement of a massive goodwill impairment charge back in April.
Now, shares are falling again after the company announced a second goodwill impairment charge. The company registered this charge in the second quarter. The shares slid almost 18% in one trading session on July 28, following the July 27 earnings report.
At the same time, growth in revenue and medical visits have both slowed at Teladoc. The company is facing other challenges, as well.
Despite all of this bad news, the latest earnings report offered us a few signs that the future may be bright for Teladoc. Does this make the company a bad-news buy? Let’s find out.
Not just a pandemic player
I’ve been generally positive on Teladoc over time. The pandemic offered the company a big boost to revenue — but this isn’t a pandemic-only stock. Teladoc’s revenue already was on the rise before the health crisis, and telemedicine is a growing market. It’s expected to reach more than $396 billion in 2027, according to Fortune Business Insights.
Teladoc is a leading player. Membership in the U.S. totals more than 56 million.
But the company has faced headwinds in recent times. One big problem was the $6.6 billion non-cash goodwill impairment charge recorded in the first quarter, which indicates Teladoc paid too much when it acquired Livongo back in 2020. To make matters worse, Teladoc recorded a new $3 billion goodwill impairment charge in the second quarter. This one is linked to the decline in the Teladoc stock price.

As for revenue and visits, they’re still advancing, but not as much as in the past. Revenue climbed 18% year over year in the second quarter. That compares to 25% growth in the first quarter and triple-digit growth just a year ago. Total visits increased 31% in the second quarter. That’s slowed from the 40% gain in the same period a year ago.
Teladoc says the current economic environment means potential clients are taking longer to decide on and finalize contracts, and this delays revenue. Lower consumer sentiment also is weighing on Teladoc’s BetterHelp mental-health services. Finally, a stronger dollar translates into lower revenue from international customers.
Problems linked to the economy
Can these problems be solved? Over time, yes, because they’re linked to the economic situation, not to flaws in Teladoc’s business. Once the economy improves, these headwinds should disappear.
But this doesn’t mean we should shrug off today’s situation. Teladoc still has to make it through these tough times. And we don’t know exactly how long they’ll last.
Let’s look at some of the positive signs from the Teladoc report. One is chronic care. This is an area with a lot of potential because of the number of Americans with chronic conditions.
Nearly half of Americans suffer from at least one chronic condition. And people who enroll in chronic care tend to go for more than one program. About 30% of chronic-care members are enrolled in multiple programs, Teladoc says.
Another sign of future growth is Teladoc’s primary-care service, which is still in the early stages of growth. Data shows that people who generally don’t go to doctors are using Teladoc’s Primary360. Two-thirds of members using the service hadn’t seen a doctor in the previous two years.
Finally, Teladoc continues to increase two key metrics that should boost revenue over time. This is U.S. paid members and revenue per member. They gained 8.8% and 13%, respectively, year over year.
Is the stock a buy?
Considering all of these points, is Teladoc a buy today? For cautious investors, no. Even though the future looks promising, the path ahead is sure to be bumpy.
Teladoc isn’t yet profitable, and the economic situation may continue to hurt the company — making profitability more difficult to attain. As a result, investors might sanction the stock for a while longer.
Still, more aggressive investors should take a second look at this telehealth heavyweight. The stock is trading at less than three times sales. If Teladoc manages this crisis well and continues to grow — even at a slow pace — this price looks pretty cheap.
An investment in Teladoc stock probably won’t pay off right away. But Teladoc still offers investors the possibility of great rewards over the long term.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Teladoc Health. The Motley Fool has a disclosure policy.

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