Is Teladoc Health Stock a Buy?

Teladoc Health (NYSE: TDOC) has struggled to navigate a shifting landscape in the virtual care industry. At the time of writing, the stock is down a disastrous 57% this year amid large recurring financial losses and weak growth.

That being said, a backdrop of extreme volatility with a deep reset of expectations can sometimes offer investors the opportunity to pick up shares in a beaten-down industry leader at an attractive price. Teladoc has the potential to turn things around, which could set the stage for a big rally.

Is now the time to buy Teladoc Health stock?

Navigating intense competition

Teladoc is recognized as a pioneer in telemedicine as a transformative solution for people to connect with a licensed healthcare professional online. The ability to receive a diagnosis for a wide range of conditions virtually has significant advantages, such as lower costs and time-saving convenience. Teladoc captured explosive demand during the COVID-19 pandemic as a wave of patients sought solutions to avoid public settings.

Fast forward to today, and a lot has changed, with multiple new entrants in the market including large hospital systems and healthcare groups investing in their own telehealth services. Teladoc now also faces intense competition from specialized digital health start-ups that focus on specific medical niches, like mental health and weight loss drugs. Ultimately, these developments have translated into a broad slowdown that helps explain Teladoc's stock-price weakness.

Image source: Getty Images.

Teladoc Q3 earnings review

In the third quarter, Teladoc's revenue declined by 3% year over year, while an earnings-per-share (EPS) loss of $0.19 at least narrowed from $0.35 in the prior-year quarter. The good news is that Teladoc continues to serve 94 million paying members across its core U.S. Integrated Care service, a level that has increased by 4% over the past year. The company is also finding some success internationally, where the smaller segment revenue climbed by 15% from Q3 2023 and now represents 16% of the business.

On the other hand, the total number of paid visits and utilization are down across the platform. Trends from the company's more lucrative "BetterHelp" mental health platform have disappointed, where the 398,000 paying users is down 13% from 2023.

Image source: Teladoc Health.

For the full year, Teladoc expects annual revenue growth in the "low single-digit to mid-single digits," with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin between 14.9%-15.3%. That forecast implies 2024 adjusted EBITDA of around 400 million, which, if confirmed, marks a 20% improvement over the $328 million result in 2023, reflecting an effort to control costs and expenses.

Overall, the fundamentals are stabilizing, even if the momentum is below expectations from the start of the year. On the balance sheet, Teladoc ended the quarter with $1.2 billion in cash and cash equivalents against $1.5 billion in total debt, supported by positive operating cash flow.

Waiting for stronger growth

The challenge with Teladoc is that beyond the near-term financial results, the company's positioning as an industry leader appears to have been diminished by a loss of "economic moat" competitive advantage. This is evident as telehealth platforms have become commoditized.

Major corporations, like Amazon and CVS Health, are offering alternative consumer-facing telehealth solutions. The impact will likely be lower pricing over time, which can pressure profits in the long run. Teladoc has also fallen behind the specialty players, like Hims & Hers Health and Talkspace, which are generating stronger growth.

The uncertainties surrounding Teladoc may justify a deeply discounted valuation. Shares are trading at a forward price-to-sales (P/S) ratio of just 0.6, consistent with negative EPS and the muted growth outlook. This is in contrast to larger P/S ratios from Hims & Hers and Talkspace. These companies are, in effect, capturing industry market share at the expense of Teladoc.

TDOC Operating Revenue (Quarterly YoY Growth) data by YCharts.

Decision time on Teladoc stock

I believe the prudent move for investors is to avoid Teladoc stock. Without evidence of a bigger sales rebound and recovery from the Betterhelp segment, the stock should remain volatile. Ultimately, investors may find more attractive opportunities elsewhere in the market.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Teladoc Health. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.