Investors are always looking for growth in small-cap stocks like Teladoc Health, Inc. (NYSE:TDOC), with a market cap of US$3.8b. However, an important fact which most ignore is: how financially healthy is the business? Since TDOC is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, these checks don't give you a full picture, so I suggest you dig deeper yourself into TDOC here.
TDOC’s Debt (And Cash Flows)
TDOC's debt levels surged from US$207m to US$415m over the last 12 months – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$479m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of TDOC’s operating efficiency ratios such as ROA here.
Does TDOC’s liquid assets cover its short-term commitments?
Looking at TDOC’s US$62m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$533m, with a current ratio of 8.53x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Can TDOC service its debt comfortably?
TDOC is a relatively highly levered company with a debt-to-equity of 41%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since TDOC is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
TDOC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around TDOC's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for TDOC's financial health. Other important fundamentals need to be considered alongside. You should continue to research Teladoc Health to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TDOC’s future growth? Take a look at our free research report of analyst consensus for TDOC’s outlook.
- Valuation: What is TDOC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TDOC is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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