Teladoc Health Stock Appears To Be Modestly Overvalued
- By GF Value
The stock of Teladoc Health (NYSE:TDOC, 30-year Financials) is believed to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $182.99 per share and the market cap of $27.9 billion, Teladoc Health stock gives every indication of being modestly overvalued. GF Value for Teladoc Health is shown in the chart below.
Because Teladoc Health is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 42.1% over the past three years and is estimated to grow 46.60% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Teladoc Health has a cash-to-debt ratio of 0.53, which is in the middle range of the companies in the industry of Healthcare Providers & Services. GuruFocus ranks the overall financial strength of Teladoc Health at 5 out of 10, which indicates that the financial strength of Teladoc Health is fair. This is the debt and cash of Teladoc Health over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Teladoc Health has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $1.1 billion and loss of $4.24 a share. Its operating margin is -38.23%, which ranks worse than 83% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks the profitability of Teladoc Health at 3 out of 10, which indicates poor profitability. This is the revenue and net income of Teladoc Health over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Teladoc Health's 3-year average revenue growth rate is better than 94% of the companies in the industry of Healthcare Providers & Services. Teladoc Health's 3-year average EBITDA growth rate is -56.1%, which ranks in the bottom 10% of the companies in the industry of Healthcare Providers & Services.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Teladoc Health's ROIC is -7.84 while its WACC came in at 3.60. The historical ROIC vs WACC comparison of Teladoc Health is shown below:
In short, the stock of Teladoc Health (NYSE:TDOC, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in the industry of Healthcare Providers & Services. To learn more about Teladoc Health stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
