“Never try to grab a tumbling knife.” You have probably heard of the old investing adage before. The idea is that it isn’t a good idea to invest in a firm while it’s still in a significant slide.
In many situations, the claim appears to be true. I don’t believe it applies in every situation, though. If the underlying company is healthy, investing in beaten-down equities before they begin to rise can be a wise technique. Here’s a growth stock that’s down 80% for you to buy today and hold for years to come.
A business that is built for the 21st century
Teladoc Health ( TDOC 3.97% ) appears to be a real 21st-century business. The firm was an early pioneer in offering telehealth services to its patients. Teladoc was founded 20 years ago with the goal of making sure that everyone has access to the finest healthcare, wherever they are in the world, on their terms.
Teladoc’s success in bringing that concept to life has been nothing short of astounding. The corporation has made significant progress toward making that goal a reality. Today, Teladoc is the worldwide leader in virtual care. It serves over 76 million members across the world. Its corporate client list includes nearly 12,000 firms, including over half of Fortune 500 companies.
At the same time, Teladoc broadened its scope to cover more serious ailments as it grew. The firm now provides a wide range of virtual care services, including chronic condition management, primary care, mental health, dermatology, and other areas.
The demand for Teladoc’s services is increasing. Its revenue increased by 86% in 2021 to $2.03 billion. Although Teladoc is yet to become profitable, its bottom line has improved significantly. Last year, the firm also reported a strong positive adjusted earnings prior to interest, depreciation, taxes, and amortization (EBITDA) of almost $268 million, well above the figure from 2020.
Behind the plunge
Why, then, have Teladoc’s shares tumbled 80% since early last year? I believe there are three primary reasons for this.
Investors were concerned that Teladoc’s growth would slow dramatically after the COVID-19 lockdowns were lifted. It is true that the firm’s US paid membership expansion has slowed down. The number of visits to Teladoc, on the other hand, is continuing to grow rapidly.
Second, some people are worried about increased competition. Last summer, Amazon entered the telehealth market. Doximity’s telehealth service has gained momentum. Zoom wants to grow its telehealth business further.
However, despite the rise in competition, Teladoc appears to be holding its own. The firm is also collaborating with Amazon to bring Teladoc’s telehealth services to Alexa users.
The third reason that Teladoc’s has had a poor stock performance is the shift away from growth stocks that started in late 2021. As a consequence of this transition, numerous former high-flying stocks have lost value.
Teladoc’s decline actually began far earlier than that. However, investors’ flight from growth stocks has made it difficult for the virtual care leader’s stock to stage a comeback.
Why should you buy and hold onto Teladoc?
Despite the stock’s recent slump, Teladoc is a wonderful investment to buy now and keep. In fact, one of the company’s biggest advantages is that it is currently a bargain due to the substantial sell-off.
The market value of Teladoc presently sits at about $10 billion. The firm’s total addressable market is valued at around $260 billion, in the United States alone. Teladoc believes it has a potential revenue opportunity of $75 billion within its current membership base.
From a revenue standpoint, the financial firm is projecting $4 billion in sales by 2024. The stock price of Teladoc, which trades at only 2.4 times the revenue goal, shows that investors are optimistic about its prospects. That’s a cheap value for a company with Teladoc’s growth potentials.
Is Teladoc’s long-term potential still as bright as it was in the past? I believe so.
Experts in the business tell CNBC that virtual care is still in its early stages of development. Telehealth, according to 82 percent of customers, equals or exceeds traditional face-to-face therapy. Because virtual care is cost-effective, payers enjoy it.
In terms of customer support, TeleDerm is the undisputed leader. The industry’s breadth of virtual care services is unrivaled by any other firm. Teladoc has earned the top spot in J.D. Power’s telehealth customer satisfaction index.
For now, this stock may still be a “falling knife.” However, according to Wall Street experts, Teladoc will rise by more than 70% in the next year. That kind of return seems feasible to me. And my expectation is that over the next decade, Teladoc will easily achieve a 5x or greater increase.
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