© Reuters. Teladoc: Structure, cash flow to rekindle investor confidence
Teledoc (TDOC) is a provider of virtual health services in the United States.
I am bullish on the stock. (See Teladoc (NYSE 🙂 stock charts on TipRanks)
Teladoc stock lost more than a third of its value in 2021 for various reasons.
First, the company made significant acquisitions in 2020, including Livongo Health (NASDAQ 🙂 and InTouch Health. Acquisitions tend to affect an acquiring company’s balance sheet in the short term and then add value to it in the long term.
Second, Teladoc shares fell victim to a health tech sell-off in February and then again in May as investors decided to cash in some of their 2020 profits before it not be too late.
The Relative Strength Index suggests the asset has been close to oversold with a reading of 32.9, which is near its all-time low.
When companies acquire, they often improve their financing costs by adding more sustainability to their operating margins. Over the past 22 months, Teladoc has managed to reduce its weighted average cost of capital from 12.9% to 2.9%, which means investors can expect high cash flow in the future.
Investors are also probably making assumptions about the company’s prospects instead of looking at its tangible results. Teladoc’s CAPEX increased by 73.9% over the past year.
Analysts expect earnings per share to grow an additional 77.1% by December 2022. If we combine that with a price-to-book ratio trading at a sector haircut of 73.3%, we can reach a consensus according to which we are considering a Stock Undervaluation.
The Taking of Wall Street
Wall Street believes Teladoc is a moderate buy, with 13 buy ratings and eight sustaining ratings awarded in the past three months. The Teladoc average price target of $ 203.20 implies a potential upside of 67%.
Teladoc’s share price fell due to acquisition spending, but the company has since improved its capital structure while producing tremendous growth in its free cash flow.
These factors combined could result in a significant increase in the fair value of the share.
Disclosure: At the time of publication, Steve Gray Booyens does not have a position in any of the titles mentioned in this article.
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