the part of Health Teladoc (WKN: A14VPK) is something really special right now. As a result, we can say that the current value of the company is at the level before the COVID-19 pandemic with a significant growth acceleration. That said, the stock is back to where it was two years ago, only there has been strong growth since then.
To me, this means that valuation and growth have become decoupled from the outlook. This could create an investment case, provided one believes in telemedicine as a long-term growth market.
Teladoc Health: Valuation and Growth Decoupled
Shares of Teladoc Health are now valued at a market capitalization of $10.7 billion, which is really very small. Ultimately, we barely see a company here that now has annual sales of over $2 billion and is consequently valued at a price-to-sales ratio of just over 5. The trend is still down, because the Growth should ultimately still be between 25 and 30% based on sales.
That means shares of Teladoc Health look extremely cheap, even based on its medium-term guidance. Extending the sales forecast of at least $4 billion to 2024 would mean the price-to-sales ratio would drop to 2.5. Without a doubt, this would be a moment in which we could put into play a value thesis. For a growth stock that is not likely to suddenly stop growing, this valuation measure would be very cheap.
Teladoc Health management also sees an overall addressable market of $261 billion in the long term. At the same time, consistent investments are made to achieve a greater range. The company’s vision includes creating an all-in-one platform for the whole body and mind in the world of digital health. Presumably also a platform where data plays a more crucial role, Livongo Health is the gateway here. With only $10 billion or a 2.5 to 5 price-to-sales ratio in the next few years, I see this as too much pessimism or decoupling from the prospects of this growth story.
Is there any reason for this?
The key question now, of course, is whether there are reasons for this decoupling in shares of Teladoc Health. Perhaps the simple answer first: Yes, it is possible. Slower growth and lack of profitability are the features that concern investors. Still, there is positive free cash flow from time to time.
But even that does not justify the great pessimism of this growth story in my opinion. Anyone who believes in telemedicine as a long-term continuation of digitization should wonder why shares of Teladoc Health are valued the way they are today. Or if this evaluation measure is not too cheap.
For growth, a bigger market, and a really logical trend, the valuation measure seems very, very cheap to me right now. And also for a company that works very meticulously to get as much of this pie as possible by focusing on services and the ecosystem.
Teladoc Health: Valuation and Growth May Have Decoupled from Outlook The article first appeared in The Motley Fool Germany.
Vincent owns shares of Teladoc Health. The Motley Fool owns stock and recommends Teladoc Health.
Motley Fool Germany 2022