Is this US growth stock too cheap to pass up?

Stock markets have been weak after the emergence of Omicron, but has this caused some growth stocks to become too cheap?

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The stock market hasn’t exactly been the best performer recently. With the discovery of the Omicron virus variant and the uncertainty that comes along with it, US growth stocks have been hit quite hard. And with double-digit declines, some are starting to look quite cheap.

So has the recent volatility created buying opportunities for my portfolio? I certainly think so when it comes to Teladoc (NYSE:TDOC).

Telemedicine getting hammered

Teladoc shares have been pretty abysmal performers in my portfolio this year. Despite having a tremendous run in 2020, the US growth stock has fallen almost 55% over the last 12 months. The decline started long before Omicron entered the picture. But the increased uncertainty undoubtedly hasn’t helped matters.

Despite what the share price indicates, Teladoc has actually been performing admirably. In fact, looking at the latest earnings report, revenue over the first nine months of 2021 came in 108% higher than a year ago, at a record-breaking $1.48bn!

That’s almost 50% more than what was generated in the whole of 2020 alone and was primarily driven by an increasing customer roster along with higher platform usage.

What’s more, if there’s another round of lockdowns is on the horizon courtesy of Omicron, then demand for Teladoc’s services will likely continue to rise even higher. This is one of the reasons why I believe this growth stock may have been oversold, making it look relatively cheap. But if that’s the case, why has the stock seemingly collapsed?

Revenue is surging, profits… not so much

In late 2020, Teladoc completed a massive acquisition of Livongo Health. This move made the company arguably the biggest player in the telemedicine space. But it also caused Teladoc’s ledger to drip with red ink. A large chunk of stock-based compensation was issued to Livongo employees as part of the acquisition. And over the last nine months, this incurred a cost of $241m, which pushed total losses to a staggering $417.8m.

Massive losses are hardly a pleasant sight, so I can understand why investors are moving towards the exit. Even more so, given the firm now has over $1.2bn of debt on its balance sheet. But, personally, I’m not too concerned.

Most of these loans don’t mature until 2025 and, in the meantime, there is over $800m of cash equivalents to meet short-term obligations. Furthermore, stock-based compensation is ultimately a one-time expense. As such, I wouldn’t be surprised to see sudden improvements in profitability in the next 24 months.

A cheap US growth stock worth buying?

Compared to the start of the year, Teladoc shares certainly look cheap. And if management hits its 2021 full-year revenue target of $2bn, that places the price-to-sales ratio at around 7.4. For a business delivering triple-digit growth combined with strong liquidity, that’s quite an attractive price, in my mind. Therefore, I’m definitely considering increasing my position.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Zaven Boyrazian owns shares of Teladoc Health. The Motley Fool UK has recommended Teladoc Health. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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