Teladoc: We Warned You Not To Buy Before Earnings

Apr. 29, 2022 9:47 AM ETTeladoc Health, Inc. (TDOC)45 Comments4 Likes


  • We warned investors not to add Teladoc stock before its recent FQ1 earnings card. We reminded investors the risk/reward profile was not attractive.
  • Teladoc reported a bombshell quarter that missed both lines and issued weak guidance. The market responded by slashing 40% off its price.
  • However, we explain why the risk/reward profile has improved tremendously due to its unexpected decline in a single day.
  • We discuss why it's now appropriate to revise our rating from Hold to Buy for TDOC stock.
  • I do much more than just articles at Ultimate Growth Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

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Investment Thesis

Teladoc Health, Inc. (NYSE:TDOC) reported a bombshell on its FQ1 earnings card, as it missed both top and bottom lines. Furthermore, it also reduced its FY22 guidance below the lower end of its previous guidance range in FQ4. Moreover, the company was also reticent to clarify its outlook beyond FY22. As a result, the stock fell more than 40% on the day after it released its results. At one point yesterday, its price was almost cut by half.

We had cautioned investors very clearly not to add exposure to TDOC ahead of its earnings release. We observed that the stock was going against increasingly challenging macros, and it was still expensive. Accordingly, we revised our rating from Buy to Hold when most Street analysts retained their Buy/Outperform ratings (18/29).

But the extent of yesterday's drop has changed our perspective. We also noted how management had attempted to "reset" the optimism in its commentary on the company's outlook. Therefore, we believe it contributed significantly to the extreme pessimism we saw in yesterday's steep decline.

However, that decline has also improved its valuation substantially. We also observed a potentially potent bear trap that could portend a rebound from these levels in its price action. Consequently, while the outlook remains uncertain, we think its negative commentary and uncertainty have been priced in. Furthermore, Teladoc has usually performed seasonally better in H2'22, given the timing and cadence of its ad spend, which has not changed.

As a result, we are ready to revise our rating from Hold to Buy. But we highlight that TDOC stock is only suitable as a speculative buy.

TDOC Stock Valuation Has Improved Markedly

TDOC stock valuation metrics

TDOC stock valuation metrics (TIKR)

In our previous article, we discussed why TDOC stock still seemed overvalued (NTM FCF yield of 0.77%) relative to the risks that we observed. But, due to the unexpected decline yesterday, its FCF yield has improved significantly. For example, its NTM FCF yield has improved to 3.66% based on yesterday's (April 28) closing price. In addition, its FY23 FCF yield has also improved to 5.7%. Therefore, we think that has significantly altered the risk/reward profile of TDOC stock valuation.

Nevertheless, the company remains unprofitable even on an adjusted net income basis. Moreover, despite TDOC stock's steep fall, it still traded at an NTM normalized P/E of -16.67x. Therefore, it could still impact the re-rating of the stock moving forward. But, we think its much-improved FCF yields could help defend its current valuation, despite the challenging macro headwinds.

Teladoc Should Report Better Margins In H2'22

Teladoc Adj. EBITDA margins and FCF margins consensus estimates %

Teladoc Adj. EBITDA margins and FCF margins consensus estimates % (S&P Capital IQ)

Teladoc LTM FCF margins %

Teladoc LTM FCF margins % (S&P Capital IQ)

Based on the revised consensus estimates, Teladoc's profitability is expected to improve from H2'22. However, the company saw its FCF margins fall back into the red (-6.3%). It also marked a fall in LTM FCF margins from 9.1% in FQ4 to 7.9% in FQ1.

However, we can also observe the marked improvement in its adjusted EBITDA and FCF margins estimates trend from H2. It's also consistent with Teladoc's past seasonal performance and reaffirmed by management on its earnings call. Teladoc emphasized (edited):

We still expect revenue to ramp through the year. So that is one of the drivers of margin expansion. Also, on the DTC side of the business in BetterHelp, as is normal for us, we are heading up on the ad spend early in the year in Q1 and in the first part of the year. So, the fact that we are expanding margins as we go from the beginning of the year towards the end of the year is something that is entirely consistent with what we've done every year. (Teladoc's FQ1'22 earnings call)

Is TDOC Stock A Buy, Sell, Or Hold?

TDOC stock price chart

TDOC stock price chart (TradingView)

We revise our rating on TDOC stock from Hold to Buy. Of course, we couldn't have predicted the 40% drop in its price that occurred in a single trading day. But, hopefully, we helped save some investors from adding TDOC stock pre-earnings.

It's critical for investors to consider an investment opportunity from its risk/reward profile, no matter how pessimistic you are. We explained why the valuation profile for TDOC stock had improved tremendously. As a result, it has also ameliorated the risk/reward profile for TDOC stock for speculative investors.

Furthermore, our price action analysis on TDOC stock showed a potential bear trap that could be forming based on its long-term trend. The stock needed to digest all its pandemic gains and all the negative commentary and sentiments before it could stage a potential rebound.

There's always a time for everything, including speculative stocks. And we think the time has come for TDOC stock for us to revise our rating from Hold to a speculative Buy.

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This article was written by

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Sifting through the ultimate growth stocks for your portfolio

I'm Jere Wang, the lead writer and founder of JR Research and Ultimate Growth Investing Marketplace service. Our team is committed to bringing more clarity to investors in their investment decisions.

Our marketplace service focuses on a price-action-based approach to growth and technology stocks, supported by fundamental analysis. In addition, our general SA site discusses stocks from various sectors and industries. 

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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