Shares in digital healthcare company Teladoc (NYSE: TDOC) have had a bad run recently. Yesterday, the stock – which is a major holding for popular growth portfolio manager Cathie Wood – fell about 18%. Over a year, it’s down roughly 75%.
I own Teladoc stock in my own portfolio. I bought a small position during the Covid pandemic as a speculative, long-term buy as I liked the growth story associated with telehealth. Unfortunately, I’m now sitting on some big losses (after being up around 50% at one stage). So, what’s the best move from here? Should I sell, hold, or buy more stock?
Why did Teladoc’s share price crash?
Let’s start by looking at this week’s Q2 results, which caused the share price to crash. They were pretty poor.
While revenue for the quarter rose 18% to $592.4m, the company’s net loss blew out to $3.1bn from $133.8m a year earlier. This loss was mainly driven by a goodwill impairment charge of $3bn. Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the period came in at $46.7m, down from $66.8m a year earlier.
Meanwhile, guidance was disappointing too. Teladoc said that for Q3, it expects adjusted EBITDA of $35m to $45m. Wall Street had been expecting around $64m. The company blamed “current trends in the market” for the weak guidance.
Overall, it wasn’t a good report from Teladoc. What stands out to me here is that year to date, the company has taken over $9bn in goodwill impairment charges. That’s concerning. This indicates that management has clearly made mistakes with acquisitions in the past and the company had paid too much for assets.
Long-term growth story?
So, Teladoc is struggling as the world returns to normal and people visit doctors face to face again. But is the long-term growth story here still intact?
I think you could argue it is. For starters, the company grew its top line by nearly 20% last quarter. That’s a slower rate of growth than during Covid but it’s not a disaster. Revenue also beat expectations.
Secondly, Teladoc reported 4.7m total visits in Q2, up 28% year over year. It also reported US paid memberships of 56.6m for the quarter, up 9% year on year.
Third, management was optimistic in relation to the company’s prospects. “We remain confident in our ability to execute against our strategy to deliver a unified care experience that we believe only Teladoc Health has the breadth and scale to achieve,” said CEO Jason Gorevic.
Finally, the global telehealth market is expected to grow significantly in the years ahead. According to Emergen Research, the market is set to grow by nearly 30% per year between 2020 and 2028. This should provide tailwinds for Teladoc.
This all suggests to me that the stock could still have long-term growth potential.
High risk
Of course, Teladoc is a high-risk stock. The company is not profitable and competition in the telehealth market is heating up. Just because it’s down 75% over the last year doesn’t mean it can’t fall further. If the company continues to write down assets, the share price could tank again.
However, with the stock now trading on a price-to-sales ratio of about 2.4, I think the risk/reward looks reasonable. So, I’m going to hold on to the stock for now.
