Can Teladoc Stock Reverse After a 65% Correction?

Stock Market

Teladoc Health (NYSE:TDOC) stock was among the favorite growth stories for investors in the first few quarters of the pandemic. The stock surged to closing highs of $291 in February 2021 as demand for virtual healthcare increased due to lockdowns. However, the euphoria related to the virtual healthcare growth story fizzled out sooner than expected. Growth and profitability concerns dominated market sentiments and translated into a sustained decline for TDOC stock.

Last month, TDOC stock plunged to 52-week lows of $50. There has been a 24% rally from lows and the stock currently trades at $62. Is the rally sustainable for this peak pandemic-era darling stock?

There is enough negative sentiment around TDOC stock. Even after the big correction, the stock still has a short-interest that is around 15% of the free-float. However, the markets seem to be ignoring some positive data. Estimates suggest that the global telehealth market is expected to touch $636.38 billion by 2028. The market is expected to grow at a CAGR of 32.1% between 2021 and 2028. Teladoc has a big addressable market even as growth decelerates on a relative basis.

For 2021’s fourth quarter, Teladoc reported revenue of $483 million from the U.S. During the same period, international revenue was $71 million, which increased by 40% on a year-over-year basis. There is ample scope for growth in international markets in the coming years.

Having said that, Teladoc was trading at a valuation premium for a high-growth entity. For 2022, the company expects year-over-year revenue growth in the range of 25% to 30%. The markets have discounted this growth deceleration.

Is TDOC Stock Fairly Priced?

Over the long-term, there seems to be positive tailwinds for the industry. In the near-term, the markets have punished TDOC stock on growth and profitability concerns. So, is the stock trading at attractive levels after the plunge?

Recently, RBC Capital Markets slashed the price target for TDOC stock by approximately 44%. RBC analysts have assigned a revised price target of $120 for the stock. Also, among 26 analysts covering the stock, the most bearish analyst has a price target of $60. TDOC stock is trading around these levels. It seems clear that there is a market overreaction.

For 2021, Teladoc reported operating cash flow of $194 million. If paid memberships witness gradual growth and cash flows swell, TDOC stock is likely to trend higher from current levels.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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