Teladoc Health: A Strong Bull Case

Summary

• Teladoc recently reported strong Q3 2019 results that beat the top- and bottom-line estimates. Additionally, management raised its full-year 2019 guidance for revenue and visits.
• This under-the-radar telehealth company has a strong bull case and, in my opinion, Teladoc is worthy of investment dollars even at today's price.
• I am long Teladoc, and I plan to stay long the stock.
• This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Get started today »

Teladoc Health's (NYSE:TDOC) stock has performed extremely well over the past few years, and 2019 has been more of the same. TDOC shares are outperforming the broader market by almost 40 percentage points over the last 11-plus months.

Data by YCharts

I believe that the stock still has room to run, especially if you are willing (and able) to hold on to shares for the next few years. This under-the-radar company not only has a bullish long-term story to tell, but it also has promising near-term business prospects. And Teladoc's recently reported results (and management commentary) prove it.

The Latest, A Lot To Like

On October 30, 2019, Teladoc reported Q3 2019 results that beat the top- and bottom-line estimates. The company reported an adjusted loss per share of $0.28 (beat by $0.12) on revenue of $137.97M (beat by $1.51m), which also compares favorably to the year-ago quarter.

Source: Q3 2019 Earnings Press Release

Highlights from the quarter:

• Quarterly revenue grew by 24% YoY and total visits increased by 45% (to 928K)
• Total U.S. Paid membership grew by 55% to 35M
• The quarterly net loss improved from the prior-year period ($20.3M at Q3 2019 compared to $23.3M at Q3 2018), and adjusted EBITDA came in at $9M (up from $6.3M in the same period of the prior year)

There is a lot to like about Teladoc's Q3 2019 results and operating metrics, but it is important to note that management also had a great story to tell during the conference call. Additionally, management took the chance to raise its full-year 2019 guidance for two key metrics, i.e., revenue and visits, after talking up the results for the last three months.

For full-year 2019, management provided the following guidance:

• Total revenue to be in the range of $546M-550M (increased from previously communicated range of $538M-545M)
• Adjusted EBITDA to be in the range of $28M-32M (narrowed from range of $27M-33M)
• Total visits to be 3.9M-4.1M (increased from 3.7M-4.0M)
• Net loss per share between $1.49 and $1.43 (increased from previous net loss per share range of $1.52-1.60)

The increased top-line and visits guidance shows how confident management is about the company's near-term prospects and, in my opinion, proves that the newish team believes that Teladoc will be in a great position when it enters 2020.

The Bull Case Remains Strong

Teladoc's story is simple: the company is disrupting an industry that needs to be disrupted. The company's suite of services is really starting to catch on, and the recent acquisitions are already bearing fruit (for example, the Best Doctor and Advance Medical acquisitions should continue to positively impact Teladoc's business prospects, as I recently described here).

Moreover, I believe that Teladoc has a significant market opportunity that continues to expand - a few metrics highlight this point:

Source: 2018 Annual Report

I believe that this type of growth [in members, visits and revenue] shows that Teladoc is properly positioned in a market that has promising prospects. Additionally, the estimated current total addressable market (estimated to be well north of $50B) will eventually turn out to be too low of a target, in my opinion, and Teladoc is far ahead of its competitors in this growing industry. Virtual care is the future, in my mind.

At the end of the day, I believe that the company's most recent results (and guidance) made the bull case for this exciting, small-cap company stronger.

Valuation

Teladoc's stock is trading in a reasonable price-to-sales range, even after the recent run-up.

Data by YCharts

The stock is not cheap by any means, but I do believe that Teladoc will more than grow into its current valuation. This disruptive company has a significant growth profile and let's not forget that there is a real potential that a larger player may soon try to acquire this game-changing telehealth company. As such, I would not consider selling my Teladoc stock anywhere near the current level. However, if you offer me $100 per share , I would think about it.

Risks

Investing in small-cap companies comes with many risks, but the major risk for Teladoc is related to the company being outspent by larger competitors. Additionally, the company relies heavily on its partnerships to expand its business, so deteriorating relationships in the industry could have a material impact on Teladoc's business.

In addition, integration risk needs to be considered given the numerous acquisitions that have been made over the last few years. And most importantly, regulatory changes have the potential to greatly impact Teladoc's business. Please also refer to Teladoc's 2018 10-K for additional risk factors that should be considered before investing in the company.

Bottom Line

There is a lot to like about Teladoc Health, especially after reviewing the company's strong Q3 2019 results and management's commentary. Long-term investors will be richly rewarded if the company's story plays out like I believe that it will. Teladoc has consistently reported strong growth metrics, which makes me believe that this company still has promising long-term business prospects. It helps the bull case that the market also seems to be on the same page (notice the impressive YTD performance of the stock).

In my mind, Teladoc will either grow into a significant disruptive company in the healthcare industry or it will get acquired by a larger player. Either way, it is a win-win situation for investors. In my opinion, the risk for Teladoc's stock is to the upside if you are in it for the long haul.

Author's Note: I hold a Teladoc Health position in the R.I.P. portfolio, and I have no plans to sell any of my TDOC shares in the near future.

Disclosure: I am/we are long TDOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.