After Plummeting from Covid-Induced Highs, is Now a Good Time to Scoop Up Telehealth Stocks?
Telehealth stocks have declined from the Covid-induced highs and are expected to plunge further due to the nation’s return to normalcy. Moreover, the current macroeconomic headwinds are expected to put added pressure on telehealth companies Teladoc Health (TDOC), American Well (AMWL), Hims & Hers Health (HIMS), iRhythm Technologies (IRTC), and 1Life Healthcare (ONEM). So, will it be wise to scoop up shares of these telehealth companies? Read on.
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Since the beginning of the year, the stock market has experienced intense selling pressure due to various macroeconomic and geopolitical factors. Last week’s hotter-than-expected May inflation data has led to a fresh round of selling in equities.
The consumer price index rose 8.6% in May, marking its highest increase since December 1981. This has led to the S&P 500 entering bear market territory after falling 21% from its January peak, while the Dow Jones Industrial Average has fallen nearly 17% from its record high. The Nasdaq Composite is down more than 33% from its November 2021 high.
After their meteoric rise during the pandemic, telehealth stocks have fallen back to earth as investors’ interest in the industry declined with the easing of COVID-19 restrictions.
Although the economy bounced back strongly from the pandemic lows, telehealth companies lost business with people returning to traditional health services. On the other hand, since the market is expected to correct further due to concerns over the Fed’s aggressive monetary policy tightening to control the multi-decade high inflation and the subsequent recession, telehealth stocks could witness further downside.
This is why today I’m going to analyze prominent telehealth stocks Teladoc Health, Inc. (TDOC), American Well Corporation (AMWL), Hims & Hers Health, Inc. (HIMS), iRhythm Technologies, Inc. (IRTC), and 1Life Healthcare, Inc. (ONEM).
Telehealth Stocks: Avoid Buying Despite Attractive Valuation
Healthcare services have evolved, and companies are innovating and launching products and services that cater to consumer needs. Telehealth or telemedicine is one of the most exciting examples of innovation in the healthcare services industry.
Telehealth or telemedicine are often used interchangeably, but it primarily refers to delivering healthcare services remotely without needing an in-person visit to the doctor or a medical facility. Telehealth services involve providing and facilitating health and health-related services using medical care, provider and patient education, health information services, and self-care via telecommunications and digital communication technologies. Telehealth services include talking to the doctor via video conference, health apps, remote patient monitoring, storing and forwarding patient reports, etc.
At the beginning of the COVID-19 pandemic, the use of telehealth skyrocketed. People could not venture outside for consultations and in-person visits to the doctor’s clinic due to the COVID-19 restrictions. Telehealth turned out to be the savior during those difficult times. The wide acceptance of telehealth during the pandemic attracted the attention of investors as telehealth stocks climbed to new highs.
However, investor interest in the telehealth industry ebbed as the pandemic-induced restrictions were eased. As most of the population got vaccinated, people started venturing outdoors and resumed in-person doctor visits. As a result, investors shifted their focus from telehealth stocks.
As the world returns to normalcy, telehealth companies are expected to suffer further as patients seek care personally rather than virtually. The business models of telehealth companies do not look full proof as they have been unable to retain existing users and gain new users. Thus, it could be wise to avoid their stocks.
Prominent Industry Participants
The McKesson Corporation (MCK) and AmerisourceBergen Corporation (ABC) are two major industry participants. While MGK has returned 57% over the past year, ABC has gained 15.5% over the past six months. MGK has a market capitalization of $44.62 billion, while ABC has a market cap of $29.64 billion.
ABC’s Chairman, President & CEO Steven H. Collis said, “As a global healthcare solutions leader, AmerisourceBergen is advancing pharmaceutical innovation and access to create a positive impact on the health of people and communities around the world.”
5 Telehealth Stocks to Avoid Now
Teladoc Health, Inc. (TDOC)
TDOC provides virtual healthcare services with a portfolio of services and solutions, including medical subspecialties from non-urgent, episodic needs, such as flu and upper respiratory infections, to chronic, complicated medical conditions. Its brands include Teladoc, Livongo, Advance Medical, Best Doctors, Better Help, and HealthiestYou.
TDOC’s trailing-12-month EBIT margin and EBITDA margin are negative compared to the 0.98% and 3.94% industry averages, respectively. Likewise, its 0.48% trailing-12-month Capex/S is 88.9% lower than the 4.36% industry average. Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.15% is lower than the industry average of 0.35%.
Analysts expect TDOC’s EPS for fiscal 2022 and 2023 to remain negative. Over the past year, the stock has lost 81.5% to close the last trading session at $28.63.
TDOC’s POWR Ratings reflect these bleak prospects. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
It has an F grade for Sentiment and a D grade for Value, Momentum, Stability, and Quality. It is ranked #82 out of 84 stocks in the D-rated Medical – Services industry. Click here to see TDOC’s rating for Growth.
American Well Corporation (AMWL)
AMWL is a telehealth company, and its Amwell Platform provides a complete digital care delivery solution that equips its health system, health plan, and innovator.
AMWL’s trailing-12-month EBIT margin and EBITDA margin are negative compared to the 0.98% and 3.94% industry averages, respectively. Likewise, its 0.18% trailing-12-month Capex/S is 95.7% lower than the 4.36% industry average. Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.19% is 45.3% lower than the industry average of 0.35%.
For fiscal 2022 and 2023, AMWL’s EPS is expected to remain negative. Over the past year, the stock has lost 71.4% to close the last trading session at $3.97.
AMWL’s weak prospects are reflected in its POWR Ratings. It has an overall D rating, equating to a Sell in our rating system.
It has a D grade for Value and Quality. It is ranked #79 in the same industry. Click here to see the other ratings of AMWL for Growth, Momentum, Stability, and Sentiment.
Hims & Hers Health, Inc. (HIMS)
HIMS is a telehealth platform that connects consumers to licensed healthcare professionals. The company has designed and built a cloud-based technology, through which it offers a range of health and wellness products and services. Its platform helps customers to access medical care for numerous conditions related to mental health, sexual health, dermatology, primary care, and more.
HIMS’ trailing-12-month EBIT margin and EBITDA margin are negative compared to the 0.98% and 3.94% industry averages, respectively. Likewise, its 0.27% trailing-12-month Capex/S is 93.8% lower than the 4.36% industry average.
Analysts expect HIMS’ EPS for fiscal 2022 and 2023 to remain negative. It failed to surpass consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has lost 69.2% to close the last trading session at $3.76.
HIMS’ POWR Ratings reflect these bleak prospects. It has an overall D rating, equating to a Sell.
It has a D grade for Value, Momentum, and Stability. Again, it is ranked #68 in the Medical – Services industry. Click here to see the other ratings of HIMS for Growth, Sentiment, and Quality.
iRhythm Technologies, Inc. (IRTC)
IRTC is a digital healthcare company focusing on diagnosing cardiac arrhythmias by combining its wearable biosensing technology with cloud-based data analytics. The company has a portfolio of ambulatory cardiac monitoring services on a platform called the Zio service, which consists of wearable patch-biosensors, Zio XT, and Zio AT monitors, which record and store ECG data from every patient’s heartbeat for up to 14 consecutive days.
IRTC’s trailing-12-month EBIT margin and EBITDA margin are negative compared to the 0.98% and 3.94% industry averages, respectively.
For fiscal 2022 and 2023, IRTC’s EPS is expected to remain negative. Over the past month, the stock has lost 15.9% to close the last trading session at $116.93.
IRTC’s weak prospects are reflected in its POWR Ratings. It has an overall D rating, equating to a Sell in our rating system.
It has a D grade for Value and Sentiment. Within the D-rated Medical – Diagnostics/Research industry, it is ranked #45 out of 53 stocks. Click here to see the other ratings of IRTC for Growth, Momentum, Stability, and Quality.
1Life Healthcare, Inc. (ONEM)
ONEM operates a membership-based primary care platform under the One Medical brand. The company has developed a healthcare membership model based on direct consumer enrollment and third-party sponsorship. Its membership model includes seamless access to 24/7 digital health services and inviting in-office care routinely covered under health insurance programs.
ONEM’s trailing-12-month EBIT margin and EBITDA margin are negative compared to the 0.98% and 3.94% industry averages, respectively. Likewise, its 24.42% trailing-12-month gross profit margin is 55.6% lower than the 55.04% industry average.
Analysts expect ONEM’s EPS to remain negative in fiscal 2022 and 2023. Over the past year, the stock has lost 79.4% to close the last trading session at $6.94.
ONEM’s POWR Ratings reflect these bleak prospects. It has an overall F rating, equating to a Strong Sell.
The stock has a D grade for Growth, Value, Momentum, Stability, Sentiment, and Quality. It is ranked last in the Medical – Services industry.
TDOC shares were trading at $29.27 per share on Tuesday afternoon, up $0.64 (+2.24%). Year-to-date, TDOC has declined -68.12%, versus a -21.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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