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Q4 Earnings Might Spell a Discount for TDOC Stock

For most publicly traded companies, the coronavirus from China represents an ugly and also unknown headwind. From an outsider’s perspective, it appears that the outbreak is spiraling out of control, affecting surrounding countries. However, for Teladoc Health (NYSE:TDOC), this global health crisis presents a major selling point for the company’s medical app. Coincidentally – or maybe not – TDOC stock has been one of this year’s early winners.

Source: Piotr Swat / Shutterstock.com

Since January’s opening price, shares have jumped nearly 38%. And as the infection rate and fatality count from the coronavirus escalated, TDOC stock steadily moved higher. Since the beginning of October 2019, Teladoc’s equity value has increased over 73%. Based on the current momentum, it’d take a brave investor to bet against the company.

Even without the outbreak, Teladoc appealed to both patients and Wall Street. Last year, The Atlantic staff writer Derek Thompson discussed how work has turned into a religion – and that it’s making people miserable. Part of that has to do with the lack of personal time. Thus, in this stress-filled environment, setting up time for a doctor’s appointment and then actually going there eats into this precious commodity.

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But through Teladoc’s network of board-certified doctors and licensed professionals, patients can access medical advice 24/7 through their smart device. That potentially saves hours, as the appointment itself isn’t the time killer. Rather, it’s the mundane stuff like the preparation and the traffic to and from the doctor’s office.

As for the coronavirus and similar infectious diseases, concerned patients can consult a professional while reducing infection risks for all involved. Additionally, patients can receive diagnoses while maintaining their privacy.

But is that enough for TDOC stock ahead of its fourth quarter?

A Time to Justify Its Valuation

Although the fundamental narrative for TDOC stock is incredibly compelling, the fiscal picture leaves much to be desired. Currently, the Teladoc’s price-to-book ratio is 8.4 times, while its price-sales ratio is 15.9 times. Both are unfavorable relative to the average values associated with the healthcare providers and services industry. Therefore, the name of the game for management is to justify the rich premium.

Heading into the Q4 report – which is scheduled for release after the close on Feb. 26 – covering analysts are targeting an earnings-per-share loss of 33 cents. Individual estimates range from -40 cents to -29 cents. In the year-ago quarter, Teladoc delivered an EPS loss of 35 cents against a consensus target of a loss of 36 cents.

On the revenue front, analysts are forecasting $153.2 million. Individual estimates range from $150.2 million to $155.8 million. In Q4 2018, Teladoc rang up top-line sales of $122.7 million against a consensus target of $120 million.

Based on both earnings and revenue trends, the Q4 targets are very reasonable. I would be surprised if Teladoc fails to at least hit the consensus estimates. But as I mentioned above, TDOC stock carries a rich premium. Thus, investors will be looking for standout numbers to justify piling into the name.

This is where I get a little bit hesitant. I love the idea here, which is like the Amazon (NASDAQ:AMZN) of medical services. Obviously, though, the problem is that Amazon is already its own analogy for healthcare. That means as TDOC stock moves higher, the underlying company will continue to attract competition.

More critically, I’m not sure if Teladoc has a high enough barrier to competition. Other companies – such as Amazon – can offer a similar platform but superior (and profitable) scalability.

I Like Teladoc but Not the TDOC Stock Price

Again, I really love the business concept underlining Teladoc, so please, stop typing. However, I’d wager that most prospective buyers don’t like the price. As well, with the impressive gains TDOC stock has made, selling into strength would appear to be the smarter play going into Q4.

Plus, I should point out that among Stockrover.com’s warnings about the company, a high short percentage of float (28.5%) ranks as the most severe. That suggests traders anticipate an upcoming correction.

For me, the bottom line is that Teladoc is a very smart company. But the smart move as a stakeholder is to take some profits off the table. For those looking to buy, a little patience may reward you with a lower entry point.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

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