Over the past six months, Teladoc’s stock price fell to $7.41. Shareholders have lost 19.5% of their capital, disappointing when considering the S&P 500 was flat. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Teladoc, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Teladoc Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why you should be careful with TDOC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Teladoc’s sales grew at a sluggish 6% compounded annual growth rate over the last three years. This was below our standard for the consumer internet sector. 
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 5.3% 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. Revenue Projections Show Stormy Skies Ahead
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 drop by 1.3%, a decrease from its 6% annualized growth for the past three years. This projection is underwhelming and implies its products and services will see some demand headwinds.
Final Judgment
Teladoc’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 4.2× forward EV/EBITDA (or $7.41 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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