Alert: 1 Fast Growth Stock To Buy On The Dip
Investment Alert: Buy Teladoc (TDOC) Under $23/share
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
I should lead with the full disclosure that this trade is probably silly. The reason it’s such a ludicrous position to consider is the stock is down by, ohhh, probably 90%+ from its 2021 highs, and frankly fighting the trend feels like catching a falling knife. Still, what feels the worst is often the most lucrative over time, so I’ll risk for a biscuit.
Key Points
- While Teladoc has yet to achieve profitability, its history of consistent revenue growth and strong cash reserves suggests that profitability may be on the horizon.
- Despite its past performance, Teladoc’s valuation appears attractive based on cash flow analysis. The potential upside is about $30 per share, aligning with analysts’ expectations, offering a seemingly compelling risk-to-reward scenario for investors.
- On the technical front, Teladoc’s share price appears to be stabilizing and forming a base, potentially signaling an end to its downward trend. This comes as the telehealth market is predicted to grow by more than 20% annually through 2030, providing a strong tailwind for the company’s future growth.
Teladoc Now Vs Then
A few years ago, Teladoc made a disastrous strategic decision to acquire Livongo. The size of the deal back then eclipsed the entire market cap of the company now.
Over the years, management has effectively had to mark down the goodwill on the balance sheet. Right now that’s water under the bridge, and the balance sheet is looking ever more attractive with almost a billion in cash sitting in reserves.
Add to that a pristine history of growing revenues and you end up with a profit and loss statement that doesn’t look too bad at all. No, Teladoc has not turned the corner to profitability yet, but that seems like it’s just a matter of time away now.
The deep cash reserves and consistent growth tell a story about management; they’re executing really, really well. And for investors that’s what counts now, particularly given that the share price has absolutely crumbled by almost $380 per share from highs approaching $400 per share in 2021.
Why Fight The Trend?
Fighting the trend seems like a fool’s errand now. Each time the stock drops 50% it seems to plunge another 30% or more. But perhaps there is something different this time, the valuation.
When we ran the numbers on the cash flows, it seemed that Teladoc looked pretty darn good in fact. The upside is around $30 per share on a fair value basis, and that is in line with analysts’ expectations for the company too.
Technically, the share price has started to flatten out and form a multi-month base, and peek higher. That might be a signal that Teladoc is done with crushing its long-term holders, and is finally approaching the window when it will reward investors. We think so, at least.
And to add to the fundamental and technical story is the tailwind of market growth, which is forecast to grow at north of 20% annually through 2030 according to some estimates.
All the elements seem to be in place for Teladoc to rise. At the very least, the reward to risk ratio now seems quite compelling.
