Teladoc Is Oversold and Undervalued With Positive Catalysts About to Kick in

Technology stocks have taken a hit lately, and Teladoc Health (NYSE:TDOC) has not been immune to the sector-wide effects. However, TDOC stock is my top pick in this category for future gains.

There are two key factors that have driven down tech stocks. First is a valuation issue; the market overcooked profitless tech stocks in the wake of a risk-on environment triggered by stimulus checks.

The second driving force has been the higher interest rate rhetoric coming from the Federal Reserve. An increasing interest rate environment would give rise to cyclical stocks such as financials. Investors have thus opted to circle out of tech for now and into certain cyclical bets.

I’m unsure whether tech stocks will recover anytime soon, but I’m confident telehealth plays won’t be as bound to systemic headwinds as other technology assets. In that setting, TDOC stock is set to benefit.

With the flu season in full effect, I think we’re headed for a period of rising demand for modern medical care solutions. Furthermore, a rise in omicron variant cases of Covid-19 could increase the need for the company’s stay-at-home medical care segment’s products.

Teladoc has been expanding on this category of its business during the early stages of the pandemic. In July 2020, the company acquired InTouch Health in an attempt to expand its home medical care portfolio. It’s evident that the omicron variant isn’t being taken lightly by the U.S., and Teladoc’s newly-added subsidiary could gain additional traction during this period.

Q3 Earnings Beat Changes Valuation Dynamics

Teladoc unexpectedly beat its third-quarter earnings estimates with a revenue outperformance of $4.87 million and an earnings-per-share (EPS) wallop of 12 cents per share. 

Teladoc’s Health360 has benefitted from binding agreements with CVS (NYSE:CVS) and Centene (NYSE:CNC) to add to customers’ health engagement and primary care experience.

In addition, the firm was ranked as number one in consumer satisfaction by J.C. Power for the second year running. These elements combined have contributed to the 37% year-over-year (YOY) rise in total visits.

Furthermore, Teladoc’s fee-based business has picked up to add sustainability to the firm’s top-line, with revenue from access fees and visit fees increasing by 1.99x YOY and 0.85x YOY, respectively.

In my opinion, positively-skewed investor optimism could be the result of the continued exponential growth in Teladoc’s fee-based business due to improved risk-return dynamics.

The Value of TDOC Stock

TDOC stock is undervalued by about 40% based on its price-to-sales (P/S) ratio. I usually analyze growth stocks based on their P/S ratios, as the metric can be used during any phase of a company’s lifecycle.

Another key metric to look at here is the stock’s price-to-book (P/B) ratio. Teladoc is an acquisition vehicle, meaning its stock price is likely to trade below net asset value during aggressive capital allocation periods.

Teladoc made a significant number of acquisitions during 2020. I think top-line and cost synergies will soon pay off, in turn providing substance to the firm’s balance sheet value.

The stock is undervalued by about 83% relative to its book value. We can look at this statistic out of isolation by analyzing momentum metrics. As mentioned, Teladoc stock has faced downward pressure for a variety of reasons, and among those is its acquisition spree.

This is conveyed through the Relative Strength Index (RSI). TDOC stock’s RSI of 29.9 indicates it’s oversold, as it trades below the 30 benchmark.

The pendulum swings both ways. TDOC stock is undervalued, and its momentum could soon change for the better.

So What Now for TDOC Stock?

It’s been a topsy-turvy year for TDOC stock. However, key metrics indicate that smart business decisions have created a value gap.

I believe that investors will soon take advantage of the value in-store, and I’m thus bullish on the stock going into 2022.

On the date of publication, Steve Booyens did not hold any long or short positions in any of the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.