Dallas, Tex.-based Teladoc Health, Inc. (TDOC) provides business-to-business virtual healthcare services in the United States and worldwide. Ranked first in KLAS for Virtual Care Platforms in 2020 and first among direct-to-consumer telehealth providers in the J.D. Power 2021 U.S. Telehealth Satisfaction Study, the company leverages more than a decade of expertise to meet consumers and healthcare professionals growing virtual care needs.

However, the stock has declined 52.8% year-to-date and 13.5% over the past month, closing yesterday’s trading session at $94.38.

TDOC’s “myStrength Complete” personalized mental health service and strategic agreement with NLA to offer its suite of chronic care solutions may strengthen its position in the telehealth industry. However, the company’s bleak growth prospects and slim profit margins may continue to worry investors. Furthermore, in a highly competitive market, the stock may be unable to sustain its high valuation.

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Here is what could shape TDOC’s performance in the near term:

Increasing Competition

The global telehealth industry is anticipated to reach $559.52 billion by 2027, registering a 25.2% CAGR. The rising prevalence of chronic illnesses, and the growing geriatric population, have spelled an increase in the use of digital health platforms. In fact, the COVID-19 pandemic increased the need for telehealth services. To keep up with the growing demand, several healthcare providers are moving to create new platforms and extend existing telehealth capabilities. For example, American Well Corp. (AMWL) and Medtronic Plc (MDT) have significantly increased their market position by offering new products through innovation and technical breakthroughs. So, TDOC may struggle to increase its market share in the following months as competition increases.

Inadequate Financials

TDOC’s total expenses increased 88.7% year-over-year to $582.23 million for the third quarter, ended September 30, 2021. Its operating loss widened 207.1% from its year-ago value to $60.58 million. The company’s net loss surged 135% from the prior-year quarter to $84.34 million, while its loss per share rose 23.3% year-over-year to $0.53.

Poor Profitability

TDOC’s 0.18% trailing-12-month asset turnover ratio  is 49.2% lower than the 0.35% industry average. Also, its ROC, net income margin, and ROA are negative 3.7%, 43.6%, and 4.6%, respectively. And its trailing-12-month EBITDA margin stood at a negative 22.1% compared to the 5.8% industry average.

Bleak Growth Estimates

TDOC’s revenue is expected to increase 31.1% for the next quarter, ending March 2022, and 27.3% in its fiscal year 2022. However, its EPS is expected to remain negative in 2021 and 2022. Also, TDOC’s EPS is expected to decrease at a 35.5% rate per annum over the next five years. Also, the stock has an unimpressive earnings surprise history; it failed to beat the consensus EPS estimates in three of the trailing four quarters.

POWR Ratings Reflect Uncertainty

TDOC has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TDOC has a D grade for Quality and Momentum. The company’s poor financials and negative profit margins are in sync with the Quality grade. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $122.80 and $148.11, respectively, indicating a downtrend. This is consistent with the Momentum grade.

Of the 88 stocks in the D-rated Medical – Services industry, TDOC is ranked #86.

Beyond what I have stated above, on can view TDOC ratings for Growth, Value, Stability, and Sentiment here.

Bottom Line

TDOC’s widening losses in its last reported quarter have caused its share price to retreat. Furthermore, its stretched valuation multiples and poor growth attributes at a time when a slew of competitors are entering the telehealth market could raise investor concerns about the stock’s prospects. Thus, we think TDOC is best avoided now.

How Does Teladoc Health Inc. (TDOC) Stack Up Against its Peers?

While TDOC has an overall F rating, one might want to consider its industry peers, McKesson Corporation (MCK), Ortho Clinical Diagnostics Holdings plc (OCDX), and NextGen Healthcare Inc. (NXGN), having an overall A (Strong Buy) rating.

Click here to checkout our Healthcare Sector Report 

TDOC shares were trading at $92.38 per share on Thursday morning, down $2.00 (-2.12%). Year-to-date, TDOC has declined -53.80%, versus a 27.41% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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