2022 has been a brutal year for star investor Cathie Wood and year-to-date, her ARK Innovation ETF has fallen around 55%. In the past year, it has sunk over 60%. But even despite this incredible fall, her fund has still managed to climb around 50% over the past five years. This demonstrates that Cathie Wood still has a good record of picking stocks for the future. Here’s one of her favourites that’s particularly beaten down right now but looks too to me cheap at current prices.
What is the stock?
Teladoc (NYSE: TDOC) is a telemedicine and virtual healthcare company, based in the US. Due to the pandemic, demand was able to soar over the past couple of years, and this meant that the Teladoc share price hit highs of around $300 in February 2021, a 150% increase from before the pandemic. But things have been far less pretty in recent months. For example, as the pandemic has subsided, there have been signs of slowing growth. Therefore, the share price has fallen to lows of around $30, a decline of 77% in the past year.
Recently, the price crashed due to a very disappointing first-quarter trading update. Firstly, the company had to reduce expectations for 2022, and it now expects ‘only’ $2.45bn of revenues for the year. This was reduced from previous expectations of $2.6bn, highlighting the slowing growth of the firm.
Secondly, in the first quarter, the firm recorded a net loss of $6.67bn, against revenue of just $565m. This was primarily due to a non-cash goodwill impairment charge of $6.6bn, resulting from the firm’s overpayment for its acquisition of Livongo in 2020. Although this has not affected the cash position of the company, it’s still a major negative, showing severe missteps on the part of management.
Why is Cathie Wood continuing to buy?
In hindsight, Teladoc has not been one of Cathie Wood’s best purchases. However, as the Teladoc share price has sunk, she has continued to buy. I think there are many signs that the telehealth firm is now too cheap, and the long-term future is still bright.
Firstly, although growth is expected to be lower than before, Teladoc still expects full-year revenue growth of around 20%. As there are no longer lockdowns within the US, it’s encouraging to see that Teladoc is still growing. This highlights that the firm can perform well post-pandemic.
Secondly, Teladoc stock has not been this cheap since the start of 2018, a year when the firm only made $418m in revenues. Therefore, it seems that the performance of the share price has been entirely out of touch with the performance of the company. This recent decline also means that Teladoc trades with a price-to-sales ratio of just over 2. For a growth stock, this is incredibly cheap. Indeed, the firm has previously traded at ratios of around 25.
This means that I’m tempted to follow Cathie Wood and buy some more Teladoc stock. Its long-term potential seems too strong.
