Is Teladoc Stock Overvalued?

Teladoc Health Inc (NYSE:TDOC) took center stage during the coronavirus pandemic of 2020. Governments around the globe encouraged (and sometimes even forced) people to stay home, and hospital visits plummeted in the second quarter.

A new reliance on telehealth, telemedicine, and telepsychiatry services was born, and TDOC stock more than doubled while other companies suffered. This may leave you wondering – is Teladock stock overvalued?

The global healthcare industry is estimated to be worth over $10 trillion by 2022, and hospitals are increasingly looking toward telehealth as a viable revenue stream.

Relaxed rules from the Food and Drug Administration and Department of Health and Human Services made it easier to conduct medical examination via video call.

The prevalence of services like Zoom and FaceTime made it a societal norm, and even many state medical marijuana certifications can be obtained online.

Our world is looking more like the Jetsons every day, and video calls are a large part of that. Let’s dive into Teladoc to see how well it can sustain its 2020 pandemic valuation.

Why Teladoc Stock Went Up?

Because it held its IPO in 2015, Teladoc was positioned in the right place at the right time for the coronavirus outbreak. This is because it was already working on adding healthcare providers to a proven technology platform. And providers were more than eager to open this revenue stream to meet customer demand.

Right before the virus took hold, a March 2020 Bankrate survey found about a third of Americans ignore seeking medical care because of costs. This number rose to half during a similar survey by the Kaiser Family Foundation in late June.

Worldwide municipal lockdown orders effectively strangled profitability for hospitals and other healthcare businesses, which lost an estimated $50 billion so far during the pandemic, according to the American Hospital Association.

As more expensive tests, treatments, and ventilator machines are needed and covid-19 cases increase, people with other ailments are avoiding the doctor. This paved the way for Teladoc to greatly increase its sales.

It also earned enough money to buy competitor Livongo Health Inc (NASDAQ:LVGO) in an $18.5 billion merger deal that conjoined both securities. When finalized by shareholders (which is expected by the end of the year), each LVGO share will be converted to 0.05920 TDOC shares.

Although the deal still hasn’t gone through, investors are already trading as though it has and that Teladoc is the reigning champion of the sector.

Are Teladoc Financials Solid?

Teledoc raised $157 million in its IPO, with shares trading at $19 per share before jumping to $28 per share in its first day of trading.

Its second quarter 2020 revenue was $241 million, which brought it to $421.8 total in the turbulent first half of 2020. This is an increase of 144 percent compared to the first half of 2019.

The company has two main revenue streams – subscriptions from healthcare providers and consumers, and fee-only visits. Year-over-year growth has been explosive in every aspect, doubling and even tripling in some cases.

The company forecasts it’ll end 2020 in the range of $980 million to $995 million in revenue, according to its July shareholder’s call. This is up from the initial pre-covid estimate of $800 million to $825 million.

November’s earnings call will likely indicate whether or not these estimates are possible, although it’s very likely, considering the fast-paced mass adoption of virtual healthcare services in 2020. Of course, there are other market factors to consider, including competition and the upcoming merger.

Is Teladoc Valuation Too High?

If you invested in the 2015 Teledoc IPO at $19 per share, your share is now worth in the $200-250 range, which is a nice increase in profits. Even if you invested on January 3, 2020, you got in under $90 and more than doubled your initial investment.

This puts Teladoc’s market capitalization in the $15 billion to $20 billion range in 2020, which is a nearly 20x multiplier on its annual revenue. But that’s not taking into account what it’s going to gain over the next 10 years from its assets.

Teladoc is in the leading position to become the leader in virtual care. This extends beyond the video call to enable doctors to diagnose patients using wearable health data. As consumer adoption of wearable health sensors, monitors, and other tech increases, so does the potential market for Teladoc’s services.

Will Teladoc Stock Drop?

The biggest reason Teladoc’s stock is where it’s at is because of the propose merger. It’s the early frontrunner, but it’s not the only player on the block. American Well Corp (NYSE:AMWL), Doctor on Demand, MDLIVE, and more are pushing to enter the field.

And from a technological standpoint, companies like Apple Inc. (NASDAQ:AAPL), Fitbit Inc (NYSE:FIT), Microsoft Corporation (NASDAQ:MSFT), Garmin Ltd (NASDAQ:GRMN), and Alphabet Inc (NASDAQ:GOOGL) have their eyes on consumer health tech too.

A deflating stock market isn’t unexpected in 2021, but it remains to be seen whether Teladoc’s revenues will continue justifying its high market cap.

Expect to see it increase again when the merger is finalized and then slowly decrease with the rest of the market next year.

Is Teladoc Stock Overvalued? The Bottom Line

Teladoc’s stock rode a wave of media, investor, and customer attention during the 2020 coronavirus pandemic. This caused the stock’s value to more than double over the course of this year into a market capitalization that far exceeds its revenues by over 10x.

It’s not unheard of in this market (see why is Tesla stock so high), but it’s also a precarious position to be in during an impending market recession that could last years.

If you already bought into Teladoc, you’ll have plenty of opportunities to sell for a profit over the next three months. Nothing is guaranteed after that, so be aware of its inflated value.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.