Wall Street investors are very fickle these days. They are showing no commitment in either direction for longer than a few hours at a time. This makes it very difficult to commit capital with great conviction. This dynamic is part of what has impacted Teladoc (NYSE:TDOC) stock. TDOC has given up the entire relief rally out of the pandemic. It is now a falling machete seemingly going into an abyss.
My argument today will be a tough sell for most readers, but stick with me a bit longer. It’s hard to convince people that a stock has value when it’s unable to attract bids. Therefore, I will use data to support my claims.
Teladoc stock currently presents a compelling investment for the long term. But first it is important to note that nothing is absolute, so I consider this a starter position.
With so much uncertainty on Wall Street today, investors should leave room for error.
TDOC Stock Has Solid Fundamental Footing
Fundamentally, the business is healthy and that’s not just an opinion. The proof is in the company’s profit and loss official statement. Management delivered an average of 70% growth in revenues and gross profits since 2014. This should earn them the benefit of the doubt on the competence front.
Critics can point to the fact that they still lose a lot of money, and I don’t disagree. But clearly this is a growth stock, so it’s okay to overspend for now. Amazon (NASDAQ:AMZN) did it for over a decade before the naysayers finally understood.
Moreover, a great financial metric to measure value of a growth company is its price-to-sales (P/S). TDOC stock’s P/S is 7x, which is lower than Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB). This is despite the fact that it eclipses their growth rates by miles. As long as management continues to maintain the pace, valuation will normalize over time.
Often the problem of a falling stock is not in the fundamentals. Frequently it is investor expectations that are out of whack. Such was the case in TDOC, because the 2020 results were enormous. They grew subscriptions by nearly 40%, which makes it a tough comp to roll over. Indeed, 2021 was a complete dud with barely any growth. But still they have over 50 million subs, which is a good base for this year.
Demand Will Not Be a Problem
The tele-health concept makes a lot of sense on so many levels. Much like many habits we’ve developed during the crisis, this one is not a fad. The need for more efficient medical solutions is likely to rise with the global digitization trend.
The more compelling side of the argument for TDOC stock today is in its chart. Oddly enough, it broke out in January 2020 a full month before the pandemic crisis. I would have expected conspiracy theorists to be all over that one. The stock never fell like the rest of the market into a March low that year.
In fact, when the indices finally bottomed in March, TDOC stock was already up 50% from January. Currently, it is much lower than both levels.
Moreover, Teladoc stock is now at a level that has history. The bears crashed it back in October 2018. Then the bulls rocked it in January 2020. This makes the zone a sharp point of contention and on two occasions, 14 months apart. When stocks fall back into such battle zones, they often find buyers lurking.
It won’t necessarily be a hard line in the sand, but it’s the opposite of chasing stocks into runaway rallies. Buying Teladoc at these levels is not likely to be a flagrant mistake. Nevertheless, investors would do well to take only partial positions to start. The indices are still hovering near highs, so we should leave room for surprise corrections.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.