The Teladoc Health [TDOC] share price had fallen 32.2% in the year-to-date and a further 34% in the past 12-months to 20 September, when it closed at $135.52. Back in February, the Teladoc share price was in rude health, closing 46.3% up since the start of the year at $292.51 on 19 February.
However, by 8 March, the stock had fallen 39.6% from this level to $176.65, 11.7% down since the start of the year. While the Teladoc share price held steady through April, it slumped the following month, closing at $132.71 on 13 May.
Throughout June and July, the Teladoc share price staged a small recovery, peaking at $171.36 on 29 June. Despite trailing off since then, the stock had found support at around the $135 level. However, investors’ concerns were raised when the Teladoc share price closed below this level for two consecutive sessions from 14 September, prompting fears of a break below its support level.
Teladoc is the largest holding in the Ark Genomic Revolution Fund [ARKG], with a 6.7% weighting as of 20 September. The fund has also struggled of late but has outperformed the Teladoc share price, falling 13.8% in the year-to-date (through 20 September). In the trailing 12 months, the fund gained 28.3%, while the Teladoc share price declined over the same period.
Can the Teladoc share price keep up with industry growth?
The Teladoc share price enjoyed a short boost on 9 September, when it rose 1.8% off the back of news that the company had partnered with health technology platform Proximie. The tie-up aims to provide a product that will allow virtual surgical mentoring, proctoring, technical expertise and support for operating rooms and diagnostic labs. Investors were briefly cheered by the news, given the rapid recent growth and promising onward prospects for the connected health industry.
However, the boost was short-lived, and the stock soon fell below its previous support level to form a classic head and shoulders pattern. Volume surged as the Teladoc share price fell on 14 September, but a slight reversal on 15 September may reassure investors that the breakout will be short-lived.
The fundamentals, though, don’t seem to be in Teladoc’s favour. Having posted positive earnings for the first time for the quarter to March 2021, Teladoc’s latest earnings report saw the return of negative earnings per share, with the reported figure of negative $0.86 falling 45.8% below analysts’ expectations.
Valuation of the on-demand health industry in 2020
Sales, however, are forecast by Yahoo Finance analysts to increase 83.9% in 2021, although this growth is expected to slow in 2022 to 28.8%. Grand View Research expects the on-demand health industry, which was worth $96.5bn in 2020, to grow at a compound annual growth rate of 15.1% from 2021 to 2028.
The challenge for Teladoc is managing the costs involved in keeping up with this growth. The company’s research and development (R&D) spend surged to $92.7m in the quarter to December 2020, having totalled just $88.5m in the previous four quarters combined. R&D spend has come down slightly since but still topped $80m in the quarter to June 2021.
Optimism prevails despite wobbles
According to Grand View Research, digital health technology’s growth is being driven by the increasing prevalence of obesity and chronic diseases, such as diabetes, combined with the greater availability of mobile devices, particularly smartphones. The increased adoption of telehealth services was initially driven by the COVID-19 pandemic but looks set to outlive it as consumer preferences shift towards remote-first healthcare models.
The industry’s prospects perhaps explain why, despite its earnings struggles, analysts are typically bullish on Teladoc. Out of 29 analysts polled by CNN Money, only one offered a negative ‘sell’ rating. Of the 28 remaining, 12 recommended ‘hold’, and two gave ‘outperform’ ratings, with the majority giving Teladoc a ‘buy’ rating.
Out of 25 analysts offering 12-month price forecasts for the stock, the lowest target price of $140 is 3.3% below its 20 September closing price. The median target price of $185 implies 36.5% growth, while the most optimistic target price of $291 is 114.7% above the Teladoc share price’s 17 September close.