Teladoc Stock: Could Cathie Wood Be Wrong?

© Reuters. Teladoc Stock: Could Cathie Wood Be Wrong?

Star investor Cathie Wood has grown fond of a few stocks. One of her favorites of late is Teladoc (NYSE:TDOC).

Given Wood's track record, that's a great thing for long-term growth investors.

Teladoc is a platform that offered virtual medical visits during the pandemic, when people couldn’t opt for in-person visits. It provided options to patients in case local doctor offices closed, or reduced hours temporarily.

Indeed, Teladoc’s business saw a massive surge during the pandemic. The telemedicine platform reported a 98% jump in 2020 revenue, with a 156% surge in patient visits.

The company also made several acquisitions to ensure a smooth future. It acquired InTouch Health to associate with more hospitals and health systems. It purchased Livongo to boost its chronic disease management capabilities.

Although the company seems to be performing well, there are concerns about its future in the post-pandemic world. The share price has fallen 40% this year due to concerns of stalled growth in the coming days. (See TDOC stock charts on TipRanks)

Notably, many investors and analysts are optimistic about Teladoc’s future in the absence of a pandemic. However, there are some valid reasons to believe otherwise. I am bearish on the stock.

Stiff Competition Ahead

Teladoc is going to face tougher competition from newly emerging rivals in the next few years than it faces today. Talkspace (TALK) is one such major potential competitor. Talkspace's focus is on specific market segments, such as behavioral health. Similarly, other competitors would be focusing on taking a broader market approach just like Teladoc.

Therefore, it may be increasingly difficult for Teladoc to gain market share over the longer-term. Competitors in any sector eat into a given stock's dominant position.

As per analysts, the global telemedicine market will rise from $79 billion in the previous year, to over $396 billion by 2027. That's great. However, what Teladoc's market share will be five years from now is the question many investors need to ask.

What Can Go Wrong with Teladoc?

While many believe Teladoc is likely to do just fine without a public health crisis, there are some genuine concerns about the company’s future prospects. There are three major headwinds that can hit TDOC stock in the future. These are consistently higher costs, an inability to bring in new members, and lost market share. Each of these factors have already started to impact the stock.

TDOC isn’t quite profitable at the moment. Teladoc’s most valuable service, which is on-demand virtual access to doctors, is quite expensive. With more and more telemedicine companies coming into the market, it is proving quite costly to retain doctors and health experts.

What’s worrying is that there may not be a ton of leeway for Teladoc to engage in cost-cutting strategies. This is because doctors have options. They can move to other rival platforms if they feel they aren’t sufficiently compensated for their labor, or simply go back to doing what they were doing before the pandemic.

In addition, gaining new subscribers might also be an issue for TDOC. Teladoc’s paid membership increased by only 2 million between Q2 of 2020 and 2021. However, its service utilization moved up from 16% to 21.5% within the same time span. The company should, therefore, look for ways to tackle its rising expenses.

Wall Street’s Take

As per TipRanks' analyst rating consensus, Teladoc stock is a Moderate Buy. Out of 20 analyst ratings, there are 12 Buy recommendations, and eight Hold recommendations.

The average TDOC price target is $201.79. Analyst price targets range from a high of $291 per share, to a low of $142 per share.

Bottom Line

The astronomical rise in telehealth visits prompted by the pandemic is now witnessing a sharp decline. Telemedicine visits accounted for almost 70% of all medical interactions until this spring.

This number dropped to 20% by the middle of July. Most physicians believe that virtual visits will reduce significantly by next year. Accordingly, Teladoc is focusing on acquisitions to expand its services, and broaden its growth prospects.

There's reason to be bearish on Teladoc stock in this environment. Given Cathie Wood's track record, it's hard to bet against her. But this might be one stock that's got a valuation that may not hold up during the next downturn in the stock market.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article

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