With low valuation and solid portfolio, Teladoc can be a good bet for long term

The adoption of telemedicine services accelerated since early last year after coronavirus crippled the healthcare system and threw patient-physician interaction out of gear. Healthcare being an essential service, virtual care providers like Teladoc Health, Inc. (NYSE: TDOC) witnessed a spike in users, prompting the companies to scale up their offerings. The transition to digital healthcare is revolutionizing the way care is delivered, and the trend is going to stay.

The Harrison, New York-based virtual healthcare provider has remained a loss-making company since its stock market debut about five years ago. While the business model is highly relevant in the current market situation, the elusive turnaround could be a concern. The stock had entered a high-growth path earlier, in a sign that the market is optimistic about its prospects, but reversed the trend in recent weeks.

Buy the Dip?

The recent downtrend and moderation in bounces and drops indicate the stock has probably bottomed, creating a fresh buying opportunity. Prospective investors can consider buying the recent dip, which has made the valuation reasonable. The price is seen going up in the coming weeks — as much as 40% — with a large part of that expected ahead of the next earnings. Last year’s merger with Livongo Health Inc., a deal that complemented the pandemic-driven business boom, added to the optimism surrounding the stock. Nevertheless, those looking for short-term benefits might be disappointed.

Competition

One reason behind the recent dip in sentiment among Teladoc’s stakeholders could be Amazon’s (NASDAQ: AMZN) aggressive telemedicine push, which could be a threat to the company in the long term. But the telehealth market is growing so rapidly that there would be room for multiple players to operate comfortably — serving an aging population that is getting bigger. Meanwhile, Cigna (NYSE: CI) and CVS Health (NYSE: CVS) have revealed plans to expand their telehealth capabilities. But the Livongo business and diversified portfolio give Teladoc an edge over rivals. Moreover, it is not just a stay-at-home boom that is driving the company, but a promising trend that will remain intact post-COVID.

Teladoc’s latest financial report elicited mixed responses and the stock dropped after its fourth-quarter loss widened sharply to $3.07 per share and missed analysts’ projection. On the other hand, revenues more than doubled to $383 million and beat expectations.

Livongo Merger

Last year, Teladoc took over Livongo in a merger deal worth $18.5 billion, creating what is considered the biggest digital healthcare provider. Synergies from the tie-up give the combined entity a major advantage in terms of offering virtual healthcare in the changed market scenario.

Read management/analysts’ comments on quarterly reports

“The combination with Livongo extends our leadership position and enhances our opportunity to redefine the future of virtual care, leveraging technology and data at unmatched scale to drive better outcomes and lower costs while delivering a better consumer experience. We have the capabilities to deliver and manage care virtually across the spectrum for consumers, ranging from wellness and prevention to coordination of care for people living with chronic conditions, to high acuity for those dealing with critical illness,” said Teladoc’s CEO Jason Gorevic during a recent interaction with analysts.

Stock Retreats

After peaking in early February, prior to the earnings release, Teladoc’s stock retreated and slipped below $200 in the following weeks. The shares maintained the downtrend last week and closed Friday’s session down 1%.