Teladoc Health: The Story Keeps Getting Better

Summary

• Teladoc Health is garnering a lot of attention lately, but in my opinion, the company has had a strong bull case for years.
• I believe that this once under-the-radar telemedicine company is worthy of investment dollars (even at today's price) because its story keeps getting better.
• I am long Teladoc, and I plan to stay long the stock.

Teladoc Health's (NYSE:TDOC) stock has performed extremely well over the past few years, and 2020 may turn out to be the best year yet. To this point, TDOC shares have outperformed the broader market by over 100 percentage points over the last 52 weeks.

Data by YCharts

But get this, I believe that Teladoc's stock still has room to run. Not only does this small disruptive company have promising near-term business prospects, but it also has a great long-term story to tell. And it helps that Teladoc's story (i.e., bull case) keeps getting better.

The Long-term Story That Is

As I recently described, 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 Doctors and Advance Medical acquisitions should continue to positively impact Teladoc's business prospects, as I recently described here).

In addition, I believe that this type of growth (in members, visits, revenue, adjusted EBITDA and operating cash flow) shows that Teladoc is properly positioned in a market that has a tremendous growth profile. Teladoc is far ahead of its competitors in this growing industry, in my opinion, and I do not see anything slowing this company down in the near future.

Source: Investor Presentation, 3/11/2020

Additionally, I believe that the growth metrics that Teladoc has reported for its top-5 clients shows the value that this telemedicine company has been able to create for its customers.

Source: Investor Presentation, 3/11/2020

And more recently, Teladoc's business (and telemedicine in general) has been getting a lot of attention, and rightfully so, as COVID-19 has caused a national (and global) crisis in a few short weeks. For example, Teladoc saw a nice bump in its stock price after President Trump made comments about increasing the use of telemedicine and giving governmental entities the right to use the services. More directly, Teladoc reported that the company saw patient visits increase by 50% over the past week due largely to the recent health concerns.

Any way you slice it, Teladoc is a disruptive company that has a business that will likely continue to catch steam as we move through 2020 and beyond. Telemedicine is the future, in my opinion, and Teladoc may be one of the best bets in this growth industry.

The Past Results Also Tell A Good Story

On February 26, 2020, Teladoc reported Q4 2019 results that beat the top- and bottom-line estimates. The company reported an adjusted loss per share of $0.26 (beat by $0.07) on revenue of $156.5mm (beat by $3.43mm), which also compares favorably to the year-ago quarter.

Source: Q4 2019 Earnings Press Release

Highlights from the Q4 2019 results:

• Quarterly revenue increased by 27% YoY to $156.5mm.
• Total visits increased by 44% YoY to 1.2mm.
• The Q4 gross margin was 64.6% (down from 67.4% in Q4 2018), but the company's adjusted EBITDA was $15.2mm (compared to $5.8mm in Q4 2018).

The full-year 2019 results were just as good - revenue and visits increased by 32% and 57%, respectively. There is a lot to like about Teladoc's Q4 and full-year 2019 results, but the forward guidance is what got most of the attention:

• Total 2020 revenue to be in the range of $695mm-$710mm (up from $533mm in 2019).
• Adjusted EBITDA to be in the range of $60mm-$70mm (up from the $31.8mm reported for 2019).
• Total visits to be 5.5mm-5.9mm (up from the 4.1mm reported for 2019).

It helps the bull case that the current management team has been able to properly navigate this up-and-coming company through the recent market turmoil and capitalize on a very unfortunate global crisis. In my opinion, the strong forward guidance shows just how confident management is about the company's near-term prospects and, in my mind, proves that Teladoc is well-positioned for 2021 and beyond. Let's also not forget that Teladoc's management team has been able to meet (or in most cases exceed) its previous guidance, so I would expect more of the same for 2020.

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 2019 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 Q4 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. Plus, the story keeps getting better.

Teladoc has consistently reported strong growth metrics and the full-year 2019 results were no exception, which makes me believe that this company still has promising long-term business prospects. And let's not downplay the fact that so far 2020 has been a breakout year for Teladoc. I have said this multiple times in the past, but 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.

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.