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TDOC stock returns to long-term pivot areas


Wall Street investors are very fickle these days. They show no two-way engagement for more than a few hours at a time. It is therefore very difficult to commit capital with great conviction. This dynamic is part of what has impacted Teladoc (NYSE:TDOC) Inventory. The TDOC has given up on the entire rescue rally out of the pandemic. It is now a machete that falls and seems to go into an abyss.

Source: Postmodern Studio / Shutterstock.com

My point today will be a tough sell for most readers, but stick with me a little longer. It’s hard to convince people that a stock has value when it’s unable to attract bids. Therefore, I will use the data to substantiate my claims.

Teladoc shares are currently an attractive long-term investment. But first, it’s important to note that nothing is absolute, so I take this as a starting position.

With so much uncertainty on Wall Street today, investors should leave room for error.

TDOC stock has a strong fundamental foundation

Basically, the business is healthy and it’s not just an opinion. Proof of this is in the company’s official income statement. Management has averaged 70% growth in gross revenue and profit since 2014. That should earn them the benefit of the doubt skill-wise.

Critics may point out that they still lose a lot of money, and I don’t disagree. But it’s clearly a growth stock, so it’s okay to overspend for now. Amazon (NASDAQ:AMZN) did it for more than a decade before the naysayers finally got it.

Plus, a great financial metric to measure value of a growing business is its price / sales (P / S) ratio. The P / S of the TDOC stock is 7x, which is less than Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB). This despite the fact that it eclipses their growth rates by miles. As long as management keeps pace, the valuation will normalize over time.

Often the problem with a falling stock is not in the fundamentals. It is often the expectations of investors that are out of whack. This was the case at TDOC, as the results for 2020 were huge. They’ve increased subscriptions by almost 40%, making it a tough lineup to renew. Indeed, 2021 has been a complete dud with virtually no growth. But they still have over 50 million subscribers, which is a good base for this year.

Demand will not be a problem

TDOC stock returns to long-term pivot areas

Source: Charts by TradingView

The concept of telehealth makes a lot of sense on many levels. Like many habits we have developed during the crisis, this one is not a fad. The need for more effective medical solutions is likely to increase with the global trend of digitalization.

The most compelling side of the argument for TDOC action today can be found in its chart. Oddly enough, it erupted in January 2020 a full month before the pandemic crisis. I would have expected conspiracy theorists to be all over this. The stock never fell like the rest of the market in a March trough that year.

In fact, when the indices finally bottomed in March, TDOC stock was already up 50% from January. Currently, it is well below both levels.

Additionally, Teladoc’s stock is now at a level that has history. The bears crushed it in October 2018. Then the bulls shook it in January 2020. This makes the area a sharp point of contention and twice, 14 months apart. When stocks fall back into such battle zones, they often find lurking buyers.

It won’t necessarily be a hard line in the sand, but it’s the opposite of chasing stocks in searing rallies. Buying Teladoc at these levels is unlikely to be a glaring mistake. Still, investors would do well to take only partial positions to begin with. The indices always oscillate near the peaks, so we must leave room for surprise corrections.

At the date of publication, Nicolas Chahine did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.

Nicolas Chahine is the Managing Director of SellSpreads.com.


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