Teladoc (NASDAQ:TDOC) stock slumped by more than 50% after the company’s first-quarter earnings report disappointed. TDOC reported a revenue miss of $3.28 million, caused by an abrupt drawdown in its sales cycle.
It seems as though the competitive sphere is heating up in the telehealth space, causing crowdedness in the industry. Teladoc’s return on invested capital (ROIC) of -0.16% illustrates the fierce battle for power in the industry. A negative ROIC indicates that a firm’s struggling to ascertain its market position, thus, is spending an excessive amount of capital to fend off competition.
Daniel Grosslight of Citi (NYSE:C) explains Teladoc’s microeconomic situation rather well by saying that the firm’s latest earnings report: “reveal[s] cracks in TDOC’s whole health foundation as increased competitive intensity is weighing on growth and margins.” Furthermore, TDOC’s margins are worrisome. A more competitive sphere and rising input costs could add significant margin pressure to TDOC’s income statement, subsequently eroding shareholder value. To reference my opinion, Wells Fargo’s (NYSE:WFC) equity analysts commented on the same matter and stated that they’re “significant uncertainty for the trajectory of revenue and margins over both the near and intermediate term.”
Most of Teladoc’s style factors aren’t that bad, but its valuation worries me. TDOC is trading at 46.51x its sales and 4.32x its sales, suggesting that the stock’s overcooked. Additionally, the stock’s in a downward momentum freefall as it’s trading below its 10-, 50-, 100-, and 200-day moving averages.
Lastly, I’m generally concerned for growth stock investors. This is because we’re in a quality and value-seeking environment amid a contractionary economic landscape. The stock market works in factor cycles, mostly including growth, value, size, momentum, and quality. Some of these factors exhibit collinearity, but the growth factor is quite distinct as it only thrives during expansionary economic spheres. TDOC is a growth stock that has just missed big on its earnings report, thus leaving it with an arduous task to make good to its investors.
On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.