I own Teladoc stock in my own portfolio. I bought a small position during the Covid pandemic as a speculative, long-term buy as I liked the growth story associated with telehealth. Unfortunately, I’m now sitting on some big losses (after being up around 50% at one stage). So, what’s the best move from here? Should I sell, hold, or buy more stock?

Why did Teladoc’s share price crash?

Let’s start by looking at this week’s Q2 results, which caused the share price to crash. They were pretty poor.

While revenue for the quarter rose 18% to $592.4m, the company’s net loss blew out to $3.1bn from $133.8m a year earlier. This loss was mainly driven by a goodwill impairment charge of $3bn. Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the period came in at $46.7m, down from $66.8m a year earlier.

Meanwhile, guidance was disappointing too. Teladoc said that for Q3, it expects adjusted EBITDA of $35m to $45m. Wall Street had been expecting around $64m. The company blamed “current trends in the market” for the weak guidance.

Overall, it wasn’t a good report from Teladoc. What stands out to me here is that year to date, the company has taken over $9bn in goodwill impairment charges. That’s concerning. This indicates that management has clearly made mistakes with acquisitions in the past and the company had paid too much for assets.

Long-term growth story?

So, Teladoc is struggling as the world returns to normal and people visit doctors face to face again. But is the long-term growth story here still intact?

I think you could argue it is. For starters, the company grew its top line by nearly 20% last quarter. That’s a slower rate of growth than during Covid but it’s not a disaster. Revenue also beat expectations.

Secondly, Teladoc reported 4.7m total visits in Q2, up 28% year over year. It also reported US paid memberships of 56.6m for the quarter, up 9% year on year.

Third, management was optimistic in relation to the company’s prospects. “We remain confident in our ability to execute against our strategy to deliver a unified care experience that we believe only Teladoc Health has the breadth and scale to achieve,” said CEO Jason Gorevic.

Finally, the global telehealth market is expected to grow significantly in the years ahead. According to Emergen Research, the market is set to grow by nearly 30% per year between 2020 and 2028. This should provide tailwinds for Teladoc.

This all suggests to me that the stock could still have long-term growth potential.

High risk

Of course, Teladoc is a high-risk stock. The company is not profitable and competition in the telehealth market is heating up. Just because it’s down 75% over the last year doesn’t mean it can’t fall further. If the company continues to write down assets, the share price could tank again.

However, with the stock now trading on a price-to-sales ratio of about 2.4, I think the risk/reward looks reasonable. So, I’m going to hold on to the stock for now.

What is the stock? 

Teladoc (NYSE: TDOC) is a telemedicine and virtual healthcare company, based in the US. Due to the pandemic, demand was able to soar over the past couple of years, and this meant that the Teladoc share price hit highs of around $300 in February 2021, a 150% increase from before the pandemic. But things have been far less pretty in recent months. For example, as the pandemic has subsided, there have been signs of slowing growth. Therefore, the share price has fallen to lows of around $30, a decline of 77% in the past year. 

Recently, the price crashed due to a very disappointing first-quarter trading update. Firstly, the company had to reduce expectations for 2022, and it now expects ‘only’ $2.45bn of revenues for the year. This was reduced from previous expectations of $2.6bn, highlighting the slowing growth of the firm. 

Secondly, in the first quarter, the firm recorded a net loss of $6.67bn, against revenue of just $565m. This was primarily due to a non-cash goodwill impairment charge of $6.6bn, resulting from the firm’s overpayment for its acquisition of Livongo in 2020. Although this has not affected the cash position of the company, it’s still a major negative, showing severe missteps on the part of management. 

Why is Cathie Wood continuing to buy? 

In hindsight, Teladoc has not been one of Cathie Wood’s best purchases. However, as the Teladoc share price has sunk, she has continued to buy. I think there are many signs that the telehealth firm is now too cheap, and the long-term future is still bright. 

Firstly, although growth is expected to be lower than before, Teladoc still expects full-year revenue growth of around 20%. As there are no longer lockdowns within the US, it’s encouraging to see that Teladoc is still growing. This highlights that the firm can perform well post-pandemic. 

Secondly, Teladoc stock has not been this cheap since the start of 2018, a year when the firm only made $418m in revenues. Therefore, it seems that the performance of the share price has been entirely out of touch with the performance of the company. This recent decline also means that Teladoc trades with a price-to-sales ratio of just over 2. For a growth stock, this is incredibly cheap. Indeed, the firm has previously traded at ratios of around 25. 

This means that I’m tempted to follow Cathie Wood and buy some more Teladoc stock. Its long-term potential seems too strong. 

One of the worst performing growth stocks has been Teladoc (NYSE: TDOC), which has now dropped over 80% in the past year. This means that the company is now priced the same as it was following its initial public offering in 2015, despite growing revenues by around 3,000% over the same period. Therefore, I feel that the sell-off in Teladoc has now been overdone, and I’d buy more for my portfolio. 

Recent trading update 

The company’s recent trading update was abysmal and, on Thursday, the Teladoc share price fell over 40%. But what was so bad about it? 

Firstly, the company recorded a non-cash goodwill impairment charge of $6.6bn. This was due to Teladoc’s acquisition of Livongo in late 2020, for which it paid $18.5bn. However, it is now accepted that Teladoc severely overpaid for this acquisition, hence the extremely large impairment charge. 

Secondly, revenue guidance for 2022 was lowered from $2.6bn to $2.45bn. It also forecasted Q2 sales of around $590m, which was lower than expected. These reflect the difficult macroeconomic environment, including high interest rates. 

However, I still believe that the 44% drop on Thursday was an overreaction. While the goodwill impairment is bad news, it does not affect Teladoc’s cash position. Therefore, from a financial standpoint, Teladoc has not actually lost this $6.6bn — it’s purely an accounting measure. Also, the updated revenue guidance still forecasts revenue growth of around 20% year on year. For a company that current trades at a price-to-sales ratio of just over two, this is strong growth. These are some reasons I feel that this growth stock can now recover. 

Other reasons to buy this growth stock 

Initially, I bought Teladoc when it fell below $100. While I now recognise that I bought in way too early, the reasons I bought remain intact. For example, there are signs that the telehealth industry is growing, and McKinsey and Company projects that the virtual healthcare market will be able to reach $250bn. This would hugely benefit Teladoc. 

Further, the fact that revenues are still growing after the pandemic shows that Teladoc was not only a ‘Covid stock’. This offers some hope for the future and demonstrates that the sell-off may now be overdone. 

Finally, after falling over 80% in the past 12 months, Teladoc is now a potential takeover target from other growth stocks, including Amazon or Microsoft. Both these companies are involved in the telehealth sector, and as Teladoc is a market leader, it might be a shrewd acquisition at the current price. Any news of a potential takeover could see the Teladoc share price soar.  

Therefore, although it remains a risk, and the sentiment is currently at an all-time low, Teladoc is a stock I’ll continue to buy at these levels. This is because I feel the potential reward far outweighs the downsides. 

I think that this is a huge overreaction and I’m looking at buying shares for my portfolio as a result. Here’s why.

Teladoc earnings

At its earnings call last night, Teladoc announced a loss of $6.67bn, or $41.58 per share. With shares trading at $55.99 at the close of trading on Wednesday, it’s down nearly 70% in a year.

It’s not like the company lost that much cash, though. $6.6bn of the $6.67bn net loss came from a goodwill impairment charge. In other words, despite recording an accounting loss of $6.67bn, the amount of cash the company lost was $75m.

This is why I don’t think the report is that bad for Teladoc. The goodwill impairment charge indicates that it overpaid in 2020 for its acquisition of Livongo Health. While that’s not a good thing, it doesn’t mean the company is losing cash.

Teladoc’s management also lowered revenue guidance for the year. Instead of guiding for revenues of between $2.55bn and $2.65bn, management announced expectations of revenue between $2.4bn and $2.5bn.

A buying opportunity?

In my view, a 37% decline is a significant overreaction to a goodwill impairment charge. Given that no cash left the company in the impairment, and given that it accounts for the vast majority of Teladoc’s reported loss, I think that the drop in the share price is a buying opportunity for me.

The stock is volatile and the company is still carrying a substantial amount of goodwill on its balance sheet. That means that there’s a risk of future impairments, but I’m no more worried about them than I am about the one announced in this quarter.

The bigger risk, as I see it, comes from rising interest rates. With the US Federal Reserve likely to increase interest rates by 50 basis points next month, companies that are unprofitable, such as Teladoc, are likely to become less attractive. Nonetheless, I think that there’s a case to be made for Teladoc shares at these prices.

If I were valuing this company I’d use the Warren Buffett method. I’d attempt to estimate how much cash it will produce over time and then try to figure out what I’d be willing to pay today for that future cash.

At around $35 per share, Teladoc’s shares trade at around three times sales. As the company achieves scale and optimises for profit, I expect it to achieve operating margins of between 20% and 30%.

I also anticipate an increase in revenue. Teladoc’s revenues in the most recent quarter increased by just under 25% compared to the first quarter of 2021. With further growth like that on the horizon and a low multiple, I expect big things for this stock from here. I’m happy to add more shares to my portfolio.

Let’s explore what this business does, why it’s down, and whether now is actually a good buying opportunity for me.

The rise and fall of Teladoc Health

The telemedicine company provides virtual care solutions, enabling its customers to quickly get in touch and discuss various health concerns with doctors from the comfort of their own homes. Needless to say, demand for such a service skyrocketed in 2020 when the pandemic forced everyone to stay indoors.

By the end of the year, the number of paying users in the US jumped from 35 million in 2019 to 51.5 – a 47% increase. Consequently, total revenues nearly doubled, reaching $1.09bn, and the share price erupted.

Throughout 2020, shares of the growth stock climbed an impressive 150%. But today, that gain has been completely wiped out because over the last 12 months, it has collapsed by nearly 70%! What happened?

Looking at the latest earnings report, user growth has begun to slow considerably from 47% all the way down to 2%. At the same time, the business, which was on the verge of becoming profitable, suddenly saw its net losses explode from $99m in 2019 to $485m in 2020 and $418m during the first nine months of 2021.

After seeing this, I think it’s pretty understandable why investors decided to run for the hills. But getting deeper into the numbers, a very different picture is painted.

Digging a bit deeper

The slowing user growth is concerning. However, despite this, the expansion of the revenue stream has actually accelerated. In the latest results, total revenue jumped 108% to $1.48bn. The surge can be partially attributed to the massive $18.5bn acquisition of Livongo in 2020. But if the top line is growing in the triple-digit range, what happened to the bottom line of this growth share?

Acquisitions of this size take time to digest, and it can be an expensive process. Breaking down the $485m loss in 2020 shows that $88.2m consisted of integration expenses, with a further $386.4m in stock-based compensation. But both of these costs are one-time only. In other words, they’re not repeatable.

A similar story can be seen with the net losses in the first nine months of 2021. Of the $418m, $241m originates from stock awards that continue to be vested from the Livongo acquisition. With a further $134m on writing off acquired intangibles – a common process during large-scale acquisitions.

Time to buy this growth share?

So, what does all of this mean? Despite what the fall of this growth share would suggest, Teladoc as a business appears to be doing rather well. However, it’s still digesting its acquisition of Livongo, which is dragging its profits into the red.

Personally, I will wait for the full-year results to come out later this month before deciding whether or not to increase my position.

Valuation perspective

Due to the extra demand that Covid brought, the Teladoc share price soared in 2020, and reached a peak of $295 in February 2021. But the past year, has not been pretty for the company, and the stock is now priced at just $80. This is around a 70% decline in a year. Further, Teladoc is now priced below its pre-Covid levels.

But this valuation seems entirely detached from the performance of the company. In fact, for full-year 2021, Teladoc expects revenues of over $2bn, over a 90% year-on-year rise. This gives the firm a price-to-sales ratio of under 7. Compare it to Zoom, another beaten-down growth stock, which has a price-to-sales ratio of over 12. Zoom is also seeing slower revenue growth than Teladoc, with a 35% year-on-year rise in the third quarter. Therefore, in comparison, Teladoc looks far too cheap from a revenue perspective. As such, a recovery in the Teladoc share price seems warranted. 

It does have to be mentioned that Teladoc is still loss-making though, and it’s not expected to make any profits for the foreseeable future. Significant losses have been caused by the acquisition of Livongo, which in hindsight, may have been overpriced. Indeed, at the time of the acquisition, Livongo was valued at around $18.5bn, while Teladoc is now only valued at around $13bn. But while this unprofitability increases the risk of the shares, I’m willing to overlook it due to the company’s growth in other areas.

Other reasons this growth stock could rise

Teladoc operates in the telehealth industry and has established itself as a global leader in this market. There are also signs that this industry is growing. In fact, McKinsey & Company projected that the virtual healthcare market will reach $250bn. This would certainly benefit Teladoc.

Fears that the company will see reduced demand post-Covid have also not come to pass so far. In fact, in the third quarter of this year, Teladoc still saw year-on-year revenue growth of 81%. This is despite coronavirus being an even more prominent concern in 2020. Such incredible growth demonstrates that the share price fall is not correlated to Teladoc’s performance. Instead, it seems solely due to the general sell-off of growth stocks. I believe that this sell-off has now been overdone. Teladoc, in particular, seems oversold.

Therefore, due to the excellent growth at the firm, and the fact that its price hasn’t been this low since 2019, I will continue to buy more Teladoc shares.

Cathie Wood has been buying the dip

Teladoc is the largest telehealth provider in the world. But after reaching highs of nearly $300 at the start of February this year, it has now dropped back to under $100. This has made Teladoc one of the worst performing tech stocks and it has even dipped below pre-pandemic prices. Nonetheless, as the stock has dipped, Cathie Wood has continued to buy. She currently owns 11% of Teladoc shares.

One reason may be due to optimism that, after rising in popularity during the pandemic, telehealth is set to grow over the next few years. In fact, consultancy firm McKinsey & Company estimates that the US virtual care market could reach $250bn. As Teladoc is the current market leader, this is a very good sign.

Further, it has continued to report decent results. This includes expected full-year revenues of over $2bn, around a 100% rise from last year. In the recent third-quarter results, it also reported over 80% year-on-year revenue growth, despite fears that previous growth had been a one-off due to the pandemic. As such, this demonstrates to me that the recent dip in the share price has been overdone.

What are the risks?

Yet despite the company performing well, there are still some issues. For example, it continues to post large losses, and this year it expects an EBITDA loss of around $17m. With tech stocks, while I don’t mind operating losses, I like to see positive EBITDA as this shows a clear route to net profitability. Therefore, this is a key risk for the shares that must be considered.

Furthermore, there is also the risk of inflation, which is no longer being described as temporary. Inflation is particularly damaging for growth stocks because it lowers the value of future cash flows. This is where these growth stocks obtain a large amount of their valuation. If interest rates rise in the US, which is expected next year, it will also make it more expensive to borrow.

What am I doing about this tech stock?

I already own Teladoc shares, and I’m still optimistic for the long term. Indeed, I feel that the company is sacrificing short-term profitability to capitalise on long-term growth potential in an innovative sector. The company’s extremely large revenue growth offers me hope that this strategy is working. Therefore, despite the risks that face the company, Teladoc looks far too cheap in my opinion. I may buy some more, as I hope for a large rebound next year.

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.

A telehealth provider

Teladoc (NYSE: TDOC) has suffered a tragic decline since February this year, with the shares falling over 60%. Over the past year, it has also seen a decline of around 45%. This is despite the company continuing to grow revenues, even despite fears that telehealth will become less relevant after Covid. 

In fact, in the company’s Q3 trading update, it reported revenue growth of 81% year-on-year, hitting $522m. This means that the company expects full-year revenues of over $2bn, around twice as much as last year. The company also recently launched Primary360, which allows clients to pick their healthcare provider. I feel that this will help the company cement its position as a market leader in the telehealth sector. The consultancy firm McKinsey & Company also estimates that the US virtual care market could reach $250bn. With a market cap of just $17bn, and as a current leader in this market, Teladoc has plenty more room to grow.

But there are risks for the growth stock, which is the main reason why the shares have fallen. For example, the transition to virtual healthcare is certainly not guaranteed, and many customers may revert to face-to-face healthcare post-Covid. Further, the company is continually posting losses, and in Q3, the net loss totalled $84.3m. Although this was primarily due to stock-based compensation, which should cease at some point, it is still a slight worry that the company is unable to reach profitability despite the surge of demand caused by Covid. Even so, I think the company’s potential outweighs these risks, and I may add more shares to my portfolio.

A Chinese growth stock

Alibaba (NYSE: BABA) has struggled over the past year, falling 50%. This has mainly due to regulatory crackdowns from the Chinese government, which have threatened to depress profits for the e-commerce company. This worsened recently, as Alibaba was fined once again on Saturday for anti-competitive behaviour.

The most recent Q2 results were also disappointing, and this has seen the Alibaba share price fall to post-pandemic lows. In fact, although revenue managed to grow 29% year-on-year to over $31bn, this was below analysts’ estimations and far slower growth than last year. Net income also only managed to reach $524m, an 87% decrease from last year. Although this was mainly due to changes in the market price of the company’s equity investments, alongside increased investment from the company, it is still a worry.

But with Alibaba shares priced at just $136, I feel that it is oversold. Indeed, despite the headwinds it faces, it still expects FY2022 revenue growth of over 20%. This is far slower than last year, but still a positive sign that it is managing to grow. Slower growth is also factored into the share price. Indeed, it has a forward price-to-sales ratio of around three. This is very low for a growth stock, and despite the company’s slowing growth, still demonstrates undervaluation. Therefore, I may buy some Alibaba shares.

Telehealth provider

Teladoc (NYSE: TDOC) saw its share price soar during the pandemic as many people in the US opted for virtual healthcare. Nonetheless, its performance has been far weaker in recent months, and year-to-date, it’s fallen over 20%. This is because investors have started to worry about the company’s post-Covid prospects. But in my view, its current share price of around $150 doesn’t reflect its huge potential.

Indeed, even after Covid, the company is seeing incredible growth. For example, in the most recent Q3 trading update, revenues reached $522m, which was an 81% rise year-on-year. This means that full-year revenues are expected to reach over $2bn. This gives the company a price-to-sales ratio of around 10. While this does not indicate a really cheap valuation, it is undervalued in comparison to many other growth stocks. For instance, Shopify trades on a price-to-sales ratio of around 37, even though its revenue growth is slower than Teladoc’s. Accordingly, if Teladoc keeps growing revenues at the current rate, I feel its share price will be able to rise as well to reflect this.

However, there are risks. For example, in the third quarter it saw a net loss of nearly $85m. While many growth stocks are unprofitable, it is still a risk worth considering. It is also a factor that could prevent the stock from surging in price. If revenue growth slows, the price could also fall heavily.

But I am confident in the future and therefore, Teladoc makes up part of my portfolio. After the company signed recent agreements with CVS Health and Centene, I can also see the revenue growth staying at the same rate. This means that the prospect of the stock soaring seems feasible to me.

A Latin American growth stock

MercadoLibre (NASDAQ: MELI) is the other growth stock I feel could soar in the coming years, especially after its recent dip. This dip has partly been due to worries of supply chain disruption in the e-commerce market, a factor which may strain profits. Nonetheless, while this is certainly a risk, the prospects of this Latin American e-commerce stock look too good to ignore.

In fact, in the company’s Q2 trading update, it recorded revenues of $1.7bn, a year-on-year increase of 102.6%. It also managed to make a small profit of $68.2m, even though the company is prioritising growth over profits. These excellent results were boosted by the company’s fintech segment, Mercado Pago, which now has around 100m unique active users. This offers a new dimension to the company, something I feel will contribute towards larger revenues and profits in the future.

As a market leader in e-commerce in Latin America, which is still fairly unpenetrated, I also feel that the company’s growth prospects are far better than many of its competitors, including Shopify and Amazon. Therefore, if the company continues with its 100% revenue growth, I believe the share price will rise significantly as well. As such, I am tempted to buy more shares.