Is Teladoc Health a good stock to buy right now?

Actions of Teladoc health (TDOC 0.30%) it rose last week after the company reported better-than-expected third-quarter results. The company is not yet able to report significant profits, but the losses in the third quarter were far less than what investors began to expect from this telemedicine service provider.

Last week, Teladoc Health stock was up an astonishing 24% and investors want to know if they can expect more earnings from here on out. To see if this company has what it needs to deliver big returns to its shareholders, let’s take a look at why it has grown recently.

Because Teladoc Health shares have risen recently

Shares of Teladoc Health recently had one of their best days in a long time as the company posted a much smaller loss in the third quarter than what investors had become accustomed to. Writing the acquisition of Livongo in 2020 resulted in a reported loss of $ 9.8 billion during the first half of 2022.

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Instead of another huge loss in the third quarter, the company lost just $ 73.5 million. While investors would have preferred a profit, the modest loss of $ 0.45 per share was significantly less than the $ 0.55 per share forecast by Wall Street.

Reasons to buy Teladoc Health now

In addition to a bottom line approaching positive territory, there are other signs that Teladoc Health may offer gains to patient investors. In the third quarter, total revenue increased 19% year-over-year as the number of paid members reached 57.8 million.

In theory, the value of Teladoc Health’s platform increases as more patients and doctors become familiar with it. The company is winning the tender to develop a network effect. It facilitated over 4.7 million visits in the third quarter, a 14% increase over the previous year period.

Reasons to stay cautious

Any tech-based company with over 50 million paid members that still can’t make ends meet should be viewed with some suspicion. I am not a buyer of these shares because I don’t think Teladoc’s business has any pricing power.

If Teladoc Health’s overall size helped it ask for higher prices than its smaller competitors, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) would increase as a percentage of revenue. Instead, Adjusted EBITDA fell to 8.4% of total revenue in the third quarter from 13.9% at the end of 2021.

Also, Teladoc Health probably won’t be the largest telemedicine service provider for a long time, if it hasn’t already been eliminated from this position. Venture-backed Doctor On Demand is not a publicly traded company subject to the same revelations as Teladoc, but we do know that it currently boasts 98 million lives covered.

Teladoc’s biggest competitors in the years to come will most likely be health care providers who are delving into primary care. Providing health care is an increasingly profitable option for a small handful of giant companies that also collect health insurance premiums. Rather than hiring Teladoc to facilitate virtual medical examinations, Cigna acquired MDLive last year.

Earlier this year, CVS Health wallowed with an $ 8 billion acquisition proposal It means Health. It is a network of 10,000 doctors that this year will connect with 2.5 million unique members through a combination of in-person and virtual visits.

It doesn’t look good

Facilitating virtual health care is such a commodified service that even pandemic-fueled blocs could not pull Teladoc Health’s profits out of the red. Now that giant healthcare providers are intensely focused on the benefits of primary care, making a profit in this competitive space will only become more difficult. Without a clear path to profitability, it’s probably best to look at Teladoc Health from a safe distance.

Cory Renauer has no position in any of the titles mentioned. The Motley Fool has locations and recommends Teladoc Health. The Motley Fool recommends CVS Health and CVS Health Corporation. The Motley Fool has a disclosure policy.

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