Teladoc Health (NYSE:TDOC) Has Debt But No Earnings; Should You Worry?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Teladoc Health, Inc. (NYSE:TDOC) does carry debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Teladoc Health
How Much Debt Does Teladoc Health Carry?
The image below, which you can click on for greater detail, shows that at March 2020 Teladoc Health had debt of US$447.2m, up from US$420.9m in one year. But it also has US$510.8m in cash to offset that, meaning it has US$63.6m net cash.
How Strong Is Teladoc Health's Balance Sheet?
According to the last reported balance sheet, Teladoc Health had liabilities of US$97.2m due within 12 months, and liabilities of US$505.7m due beyond 12 months. Offsetting this, it had US$510.8m in cash and US$70.7m in receivables that were due within 12 months. So its liabilities total US$21.4m more than the combination of its cash and short-term receivables.
This state of affairs indicates that Teladoc Health's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$17.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Teladoc Health boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Teladoc Health can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Teladoc Health wasn't profitable at an EBIT level, but managed to grow its revenue by 32%, to US$606m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Teladoc Health?
While Teladoc Health lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$19m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for Teladoc Health shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But that doesn't change our opinion that the stock is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with Teladoc Health .
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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