With its stock already jumping more than 120% this year already, Teladoc is poised to get a long-term boost from the COVID-19 pandemic.
The stock market has made a strong comeback after plunging earlier this year due to investors’ worries about the economic fallout stemming from the COVID-19 pandemic. Nonetheless, in 2020, the S&P 500‘s return is still in the red by nearly 9%, with about 80% of the stocks in the index down.
Many of the stocks in the winning minority are the stocks of companies whose businesses are getting a boost from the global crisis. Investors need to be very careful before diving into the stocks of these companies — or “coronavirus stocks” — because once the pandemic ends, so too will the tailwind to many of their businesses.
There are companies, however, that should experience a sustainable increase in demand for their products and services due to the pandemic. These are the companies whose stocks should prove to be the best long-term investments.
A top stock in this category is Teladoc Health (NYSE:TDOC). If you already have an adequate emergency fund and have, say, $1,000 in stimulus money or other savings you’d like to invest, you might consider buying Teladoc stock now. The company recently provided a really bright outlook.
A top coronavirus stock: key stats
|Company||Market Cap||Forward P/E||Projected Annualized 5-Year EPS Growth*||YTD 2020 Return||Return Since IPO in July 2015|
|Teladoc Health||$13.1 billion||N/A||20%||111%||829%|
Teladoc is the leader in virtual healthcare. Its platform enables its more than 43 million U.S. members and millions of fee-only customers around the world to “visit” a healthcare provider by telephone or video chat.
The company was growing briskly before the pandemic, with revenue jumping 27% year over year in the fourth quarter of 2019. That’s not surprising when you consider that most people dislike visiting a doctor’s office. A virtual visit is more efficient (no driving to an office, no sitting in a waiting room), often more pleasant, and more hygienic (no germy waiting room). Employers and insurers also like the efficiency, since it usually translates to lower costs for them.
The pandemic surge
Teladoc’s already rapidly growing business got a huge jolt beginning in March. That’s when the COVID-19 outbreak began rapidly spreading in the United States and other countries outside of China, prompting the World Health Organization to declare it a pandemic. The public has been urged by top health experts, including those on President Trump’s coronavirus task force, to skip office visits to healthcare providers and use telehealth services when possible to help slow the spread of the virus.
Quantifying that “huge jolt,” on April 14, the company said in its release of preliminary first-quarter results that it was “now routinely providing in excess of 20,000 virtual medical visits per day in the United States, representing an increase of over 100% as compared to the first week of March.”
As to its first-quarter results, which it reported on April 29, revenue soared 41% year over year to $180.8 million. Growth was driven by a 92% surge in total visits to 2 million visits and a 61% rise in U.S. paid memberships to 43 million members. Its net loss narrowed 2% to $29.6 million, which translated to net loss per share narrowing 7% to $0.40. The company isn’t yet profitable because it’s been investing heavily in growth initiatives.
A super-healthy outlook
Teladoc’s second quarter promises to be even stronger than its first quarter because only the last month of the first quarter benefited from the pandemic. The company guided for second quarter revenue growth of 65% to 73% year over year, and expects full-year 2020 revenue to increase 45% to 49%.
Not everyone who uses Teladoc’s services during the pandemic will continue to do so once the crisis ends. But it seems to me that many people will. Once folks get a taste for telehealth’s convenience and efficiency, it seems unlikely they’ll want to go back to the old way of doing things.
Teladoc has tremendous long-term growth potential. Management estimates the company’s total addressable market (TAM) in the U.S. is $25 billion to $30 billion and its international TAM is at least $15 billion to $20 billion. That’s a total TAM of upward of $40 billion to $50 billion.
In 2019, Teladoc generated revenue of $553.3 million, or just 1.1% to 1.4% of its projected TAM. As long as the company keeps customer satisfaction high, its status as the industry leader should ensure that it captures an outsize portion of the industry’s TAM.
And what about the Wall Street consensus estimate that earnings will increase at an average annual pace of 20% a year over the next five years?
Analysts, in general, don’t have a good grasp of the demand for Teladoc’s services. So, I’d not put much confidence in their projections. Going into Teladoc’s first-quarter earnings report in late April, analysts were modeling for 2020 revenue growth of 34% year over year. Teladoc guided for growth of 45% to 49% — and we can probably assume that this is conservative guidance because smart management always issues an outlook they feel darn sure they can meet or exceed.
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