Teladoc (TDOC) Up 26% in 22 Days, Will Upside Continue?

The rally in Teladoc, Inc’s TDOC stock has gained traction from strong second-quarter 2018 earnings plus solid 2018 guidance.

Since the release of the company’s results on Aug 2, 2018, shares have rallied 26%, outperforming the industry’s growth of 6.6%.

What Drives the Stock?

This telehealth service provider rides high on an inorganic growth profile, strong demand for its telehealth services, an increasing clientele and a gradual march toward a break-even. All these factors have encouraged the stock to fly at jet speed.

Catalysts to Bull Run

Investors note that the company is in growing stage and persistent losses over the past several quarters are a result of heavy expenditures incurred on marketing and substantial investments made to acquire new clients, build a proprietary network of healthcare providers and develop the technology platform.

However, what is more encouraging is that these investments are reaping results, reflected by a strong increase in membership, visits and client base.

These upsides have contributed to an upsurge in revenues at the company, which have witnessed a CAGR of 74% during the 2014-2017 period. Revenues skyrocketed 110% year over year in the first half of 2018.  

The company’s inorganic strategies have provided enough fuel to its overall growth. A number of acquisitions, namely Best Doctors, HealthiestYou, StatDoc Advance Medical and BetterHelp completed in the past three years have enhanced growth in membership and visits. Both metrics registered a CAGR of 42% and 70%, respectively, during the 2014-2017 phase. The two were also up 44.5% and 65%, respectively, in the first half.

Investors are also confident of a decline in the expenditures, with the company gradually starting to realize leverage from the scale of operations. In the fourth quarter of 2017, the company reported a positive EBIDTA (first ever since its IPO), which shows that it is on track to achieve profitability. Though the company posted negative EBIDTA in first-quarter 2018, management has issued a positive guidance for adjusted EBIDTA in the second quarter and was able to deliver on it. In the second quarter, adjusted EBITDA came in at $2.7 million for the quarter, against an adjusted EBITDA loss of $5.1 million in the year-ago period.

Will the Rally Continue?

Teladoc is fast gaining ground in the rapidly growing telehealth services industry in the United States with ample scope to flourish owing to bloated health care costs following inefficient care, duplication of services, significant waste and extreme variation in access, cost and quality of care.

Teladoc can address this inefficiency in care by providing superior quality of care through a platform that caters to consumer demand and physician availability in real-time and in various modalities such as video, web, mobile and telephone. Moreover, the emergence of technology, via big data and analytics, cloud-based solutions, online video and mobile applications, offers the company with huge opportunity for growth.

The company’s upbeat guidance for 2018 further lends a positive insight into its performance, which in turn should support the stock price rise.

Zacks Rank and Stocks to Consider

Teladoc carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Medpace Holdings, Inc. MEDP, PRA Health Sciences, Inc. PRAH and OpGen, Inc. OPGN. Each of these stocks carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Each of these stocks delivered positive surprises in the last four quarters, with an average beat of 23.97%, 7.96% and 4.5%, respectively.
 

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