Healthcare is a big business in the United States. According to the Centers for Medicare & Medicaid Services, in 2018 healthcare spending accounted for a full 17.7% of the United States GDP – continuing a trend that began back in 1965 when Medicare was fist established. There are many factors that contribute to the magnitude of Americas medical bills, and many innovative companies have sprung up over the years in an effort to make medical care cheaper, easier, and more technology driven. One such company is Teladoc, which was founded in 2002 with the primary goal of providing “telehealth” services to patients and allow them to speak with licensed physicians via audio and video conferencing, on-demand. After launching nationally in 2005, Teladoc continued to grow organically and via acquisition and went public in 2015. Shares gradually appreciated in value after the IPO and were trading on a strongly positive trend going into 2020, when the coronavirus pandemic catalyzed a massive increase in share price.
Primarily Teladoc’s business model seeks to capitalize on the increasingly sophisticated technological tools available to everyday Americans and leverage them to make obtaining medical care easier. For example, if you’re feeling ill, Teladoc makes it possible to have a video call with a primary care physician who can recommend treatments, judge your symptoms, and prescribe treatments all without leaving your home. The company has consistently sought to expand the range of medical services it can provide remotely, taking steps like acquiring Livongo (a telehealth organization focused on diabetes management), and adding mental health services to its repertoire. At present, Teladoc boasts a market capitalization of $17.4 billion, 2019 revenues of $553.3 million, and recently reported facilitating over 7.6 million telehealth visits in the nine months ending September 30th, 2020.
Turning to Teladoc’s stock ratings provides crucial context on the factors that have propelled share prices to current levels over the last five years, and some insight into the risks associated with the company as stands:
Immediately, Teladoc’s current growth metrics stand out. Drilling down into the Growth score, we can see that as of its most recent quarterly report, Teladoc reported growing revenues at a year over year rate of 109.3%. This figure is staggering. However, looking at Teladoc’s measures of Scalability and Profitability show that the company is currently operating at a -17.8% profit margin and year to date has generated a net loss of $91.1 million. Given Teladoc’s focus on expanding the scope of the telehealth services it can provide to its approximately 51.5 million paying members and the number of high profile acquisitions the company has made over the last few years, this figures are not necessarily surprising until you consider the company’s current valuation.
As stands, Teladoc is trading at a price to sales ratio of ~31. For context, Microsoft is currently trading at a price to sales ratio of around 11.5. This market capitalization implies that the market sees enormous value in Teladoc and the services it provides - a value which has been made clear over the course of 2020. In the field of healthcare, the coronavirus pandemic has catalyzed rapid adoption of digital health technologies like telemedicine, and companies like Teladoc are poised to reap the benefits of this structural change. More broadly speaking, Teladoc is one of several healthcare companies that are changing the way that healthcare is delivered in America, and it has the potential to drive real change and create real value for patients, medical professionals, and shareholder. As the cost of healthcare in the United States continues to grow and public debate on the issue continues to intensify, the market will place premium valuations on companies like Teladoc that are delivering care in unique and innovative ways.