Despite massive gains this year, the best may be yet to come for
Teladoc.
Prosper
Junior Bakiny (TMFPBakiny) Jun 9, 2020 at 12:30PM
Most industries have been hit hard by the
ongoing crisis caused by the COVID-19 pandemic. For instance, the travel
industry is struggling, and many travel companies will continue to face severe
headwinds for the foreseeable future.
But other businesses are doing just fine, even
flourishing amid the social distancing measures. The telehealth industry is an
excellent example of this, and among the companies in this space, Teladoc (NYSE:TDOC) is one of the most prominent.
Year to date, shares of this healthcare company are up by 93.1%, but there are
good reasons to think Teladoc still has a lot of growth left in its
engine.
Telehealth services
are here to stay
Teladoc generates revenue in two ways. First,
the company charges per-visit fees for customers who use its services. Second,
Teladoc charges fees to insurance companies that offer telehealth services to
their clients as part of their policies. Obviously, the more insurance
companies Teladoc can get on board, the better it is for its bottom line. And
given recent events, it seems very likely that more and more insurance
companies will look to offer telehealth services to their clients.
Specifically, hospitals have been busy dealing
with COVID-19 patients, and to reserve resources for those suffering from the
potentially deadly disease -- and to avoid unnecessary exposure to the virus on
the part of the public -- many turned to telehealth services for some routine
medical needs. Teladoc famously reported that its number of
visits skyrocketed in March, and demand will likely remain high for a little
while. These developments have boosted the profile of telehealth providers,
leading many to conclude that people will seek to continue to have access to
these services even after the pandemic subsides.
Donna O'Shea, chief medical officer of
population health management for UnitedHealthcare (one of the
largest health insurance companies in the U.S.), certainly believes that. In a
recent virtual conference called Telehealth's Tipping Point, O'Shea asserted
that UnitedHealthcare's members will want to "continue to have access to
their providers through telehealth."
This bodes well for the future of telehealth,
and in particular for Teladoc, which remains the biggest player in this
industry.
Beware of these
challenges
Investing in Teladoc isn't without its risks;
let's go over three things interested investors should consider before pulling
the trigger.
First, there's the fact that the company isn't
consistently profitable yet. During the first quarter, Teladoc posted a net
loss of $29.6 million, a slight improvement compared to the net loss of $30.2
million the company recorded during the prior-year quarter. Of course,
many growth stocks aren't consistently
profitable, but it is something investors should keep in mind, especially given
today's challenging economic conditions.
Second, there's the company's
valuation. Due to its recent performance on the stock market, Teladoc's
valuation metrics have gone through the roof. The company is currently trading
for about 15.4 times its future sales. Third, of course there's competition.
While many of Teladoc's competitors don't have much name recognition -- and
probably don't pose a particularly strong challenge to Teladoc -- there's one
competitor the company may have to worry about, namely Amazon (NASDAQ:AMZN).
Last year, the tech giant launched a virtual healthcare service
called Amazon Care. So far, Amazon Care is reserved for Amazon's
employees, but it seems likely that Amazon will eventually extend these
services to the general public. Amazon could become one of Teladoc's
biggest competitors in the years to come, and given the tech company's track
record, it would likely be a formidable competitor to Teladoc.
Teladoc is worth the
premium
Even with the potential threat from Amazon, I
think there's space for both Amazon and Teladoc in the telehealth market. This
industry remains largely untapped, and given Teladoc's leading position in the
industry, the company will likely be one of the biggest winners in the long
run. After all, Teladoc has already managed to acquire a network of more than
50,000 clinicians worldwide, which allows the company to provide the convenient
option of doctor visits 24 hours a day, seven days a week.
Competitors looking to knock Teladoc off its
perch will have to accomplish (or rival) this difficult feat, while Teladoc
continues to attract more customers, more healthcare professionals, and more
insurance companies into its network. In short, I believe Teladoc will
continue to beat the market long after COVID-19 is a thing of the past, which
makes the company a buy.
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