3 Reasons You Should Buy Teladoc Stock Like There’s No Tomorrow

Telehealth Leader Teladoc Health (TDOC -2.49%) It’s suffering the same fate as other so-called “pandemic stocks.” Now that the health crisis is largely in the rearview mirror (even if COVID itself is not), any traction the company gained from it has evaporated. Teladoc shares have fallen 89% over the past three years and are trading well below where they were before the pandemic began.

Nonetheless, there still remain excellent reasons to invest in Teladoc. This is especially true for investors who plan to hold stocks for a while. Let’s think about three things.

TDOC data from YCharts.

1. Teladoc is building a moat

Despite Teladoc’s stock price decline over the past few years, the types of services it offers continue to attract public attention. Telemedicine wasn’t just a convenient pandemic trend. The industry is expected to expand through the end of 2010 and beyond. Of course, this alone doesn’t mean Teladoc will be the winner in this space, but the good news is that the company is building a competitive advantage based on network effects.

Teladoc ended the third quarter with 90.2 million U.S. integrated care members, a 10% increase from the same period last year. The company also had 459,000 members in its BetterHelp treatment services and 1.1 million members in its chronic care programs. The more members engage with the platform, the more attractive it becomes to doctors and the healthcare system, and vice versa. This factor may help Teladoc remain a relevant player in the telehealth industry.

2. Gross margin is strong

One of the problems with Teladoc’s business is that it is not yet profitable, although it is improving on that front. The company’s net loss per share of $1.17 for the first nine months of 2023 was significantly better than the $61.09 net loss per share reported in the same period last year. Despite the bottom line being in the red, Teladoc’s gross margins are typically high.

As of September 30, adjusted gross profit margin was 70.8%, up from 68.6% in the same period last year. Teladoc’s margins were typically in this range.

TDOC gross profit margin data from YCharts.

So the natural question arises as to why the company is not yet profitable. The answer is that they had to spend a lot of money on advertising and marketing. Additionally, over the past two years, some have strengthened their BetterHelp services. The company claimed that it had lower revenue from ad spend last year than it expected for its therapeutic platform, in part because the space is becoming more competitive.

The good news is that as BetterHelp gains traction and becomes better established, the need for an aggressive advertising campaign will decrease. This also applies to the rest of Teladoc’s businesses. The company should then benefit from strong gross margins and start making a profit.

3. The price seems reasonable.

Teladoc’s stock price appears to have risen too quickly in the first year or so of the pandemic. The stock was grossly overvalued and needed a correction. But now it seems the opposite is true. The selloff has been so severe that Teladoc’s stock appears to be undervalued. The stock today trades at a forward price to sales ratio of approximately 1.4.

TDOC PS Ratio (Forward) data from YCharts.

Depending on the context, the undervalued range for that indicator typically starts below 2. Sure, Teladoc’s revenue isn’t growing as fast as it used to, but this comparison is a little unfair to the company. It’s still not profitable, but that will change over time. In my opinion, Teladoc is a great buy at current levels, especially for investors looking to hold the stock for the long term and stay the course.

This stock may not double overnight. Volatility may remain throughout 2024. But it looks like it will reward patient investors, which is a great reason to buy the stock now.