What a brutal six months it’s been for Teladoc. The stock has dropped 31.6% and now trades at $5.44, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Teladoc, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Teladoc Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than TDOC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Teladoc grew its sales at a weak 1.7% compounded annual growth rate. This was below our standards.
2. Customer Spending Decreases, Engagement Falling?
Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and Teladoc’s take rate, or "cut", on each order.
Teladoc’s ARPU fell over the last two years, averaging 8.5% annual declines. This isn’t great, but the increase in u.s. integrated care members is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Teladoc tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace. 
3. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Teladoc’s revenue to stall, a slight deceleration versus This projection doesn't excite us and implies its products and services will face some demand challenges.
Final Judgment
Teladoc isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 4.3× forward EV/EBITDA (or $5.44 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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