Over the past six months, Teladoc has been a great trade, beating the S&P 500 by 11.4%. Its stock price has climbed to $6.36, representing a healthy 23.2% increase. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Teladoc, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Teladoc Not Exciting?
We’re happy investors have made money, but we’re sitting this one out for now. Here are three reasons why there are better opportunities than TDOC, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Teladoc struggled to consistently increase demand as its $2.49 billion of sales for the trailing 12 months was close to its revenue three years ago. This wasn’t a great result and is a sign of lacking business quality.
2. Customer Spending Decreases, Engagement Falling?
Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and Teladoc’s take rate, or “cut”, on each order.
Teladoc’s ARPU fell over the last two years, averaging 9.2% annual declines. This raises questions about its ability to engage users and signals its platform’s value is eroding.
3. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Teladoc’s revenue to drop by 5.1%. That projection is underwhelming and suggests its products and services will face demand headwinds.
Final Judgment
Teladoc isn’t a terrible business, but it doesn’t pass our bar. With its shares topping the market in recent months, the stock trades at 8.4× forward EV/EBITDA (or $6.36 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward the most dominant software business in the world.
Stocks We Would Buy Instead of Teladoc
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