2 TeleHealth stocks to buy, 1 to watch in 2022


Telemedicine — medical care delivered by phone or video over the Internet — skyrocketed in 2020. This growth trend slowed in 2021, with many people returning to their doctors’ offices. But the telemedicine trend is not over. Big tech companies certainly don’t think so. Amazon (AMZN) Care launched nationwide in early 2022, and Oracle ( ORCL ) and Microsoft (MSFT) made big acquisitions in the space, the former taking over a healthcare software company identify (CERN) and the latest Nuance conversational AI outfit.

I believe telemedicine will remain a tremendous growth trend for the duration of the 2020s. Despite a massive stock price crash, telehealth leader Teladoc Health (TDOC) is still a buy in my book. So is Doximity (DOCS)and the recent IPO of SPAC DocGo (DCGO) worth a look. Here’s why.

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1. The leader in telemedicine is still in high growth mode

Industry leader Teladoc Health suffered a huge decline in its share price. It is down nearly 80% from all-time highs at the time of this writing. An early darling of the pandemic, its growth has slowed over the past year, and many investors are unhappy with Teladoc’s low profit margins. Teladoc’s market capitalization of $11.7 billion is well below the $18.5 billion in cash and stock paid to acquire connected care technologist Livongo Health at the end of 2020.

Things have gotten ugly for Teladoc shares lately, but it’s worth noting that the company went public in 2015 and has a track record of steady revenue growth. Management believes its virtual care platform for primary care, mental health, chronic disease management and a range of specialty care offerings will continue to grow. It forecasts average revenue growth of 25-30% through 2024, excluding additional acquisitions.

If Teladoc can achieve this, it would equate to approximately $4 billion in annual revenue by 2024. The company is also beginning to achieve profitable scale. Free cash flow (FCF) was $130 million last year. That’s a small profit margin, considering Teladoc made just over $2 billion in revenue in 2021, but if it can continue to grow over the next few years, I expect that metric is improving.

At this point, Teladoc is trading at 88 times the 12-month FCF and 4.5 times the expected value of sales to the enterprise for 2022. The telehealth leader will have to prove that its growth projections are the reality, especially after the slowdown in virtual care that he reported in 2021. Competition from big tech is also a concern. But I think digitally connected care will continue to improve and expand its share of the overall healthcare market.

Teladoc is therefore one of the main beneficiaries. It’s going to be a bumpy ride, but now seems like the perfect time to start munching on that stock again.

2. Connected care from a social perspective

Doximity, the social network for healthcare professionals, went public about a year ago, amassing more than $600 million in revenue — not that Doximity is desperate for the cash. The small company said it generated nearly $79 million in FCF in the first nine months of its 2022 fiscal year, an FCF profit margin of 32%. That’s not bad for a company’s first year as a publicly traded company.

But what does Doximity have to do with telehealth? It’s more than a social platform for healthcare professionals to stay in touch. It also has built-in call and video capabilities for doctor-to-doctor and doctor-to-patient consultations. It has HIPAA-compliant tools for sharing medical records. And Doximity has just deployed a small portion of its cash (it had $766 million in cash and short-term investments as of December 31, 2021) to acquire small physician scheduling software Amion.

Doximity is working from a position of strength and reporting increasing adoption of digital tools by healthcare providers and patients. According to a recent study by Doximity, three-quarters of patients surveyed said they would continue to use telemedicine even after the pandemic.

Excluding the Amion takeover, Doximity believes it will continue to grow at a rapid pace next year. For fiscal 2023 (the 12 months ending March 31, 2023), it expects to grow its annual sales to around $450 million, a 33% increase from its current year forecast. Highly profitable and posting stellar growth numbers, Doximity currently looks like a great long-term buy. It trades 85 times past FCF over 12 months, but I think that’s a worthy premium to pay – assuming you have at least a few years to allow this emerging growth story to play out.

3. A new entrant in mobile care and last mile telehealth

DocGo is a newcomer to the world of telehealth stocks, which just went public through SPAC at the end of 2021. The company acts as a last mile provider of mobile health and transport services (ambulatory services), as well as an enhanced tech-service to send a care provider where it is most convenient (to the patient’s home or workplace).

Harnessing technology as well as employing a dedicated staff of healthcare professionals does not come cheap. It shows in the financial numbers. In 2021, DocGo reported operating profit of just $15.3 million on total revenue of $319 million. FCF for the full year period was negative $6.76 million. DocGo itself admits that it relies heavily on relationships with healthcare providers. For example, the chain of kidney dialysis care centers Fresenius (FMS)accounted for just over 7% of DocGo’s revenue last year. This dependence could be a handicap if strategic partners suddenly decide to go in a new direction.

Nevertheless, DocGo has my attention, at the very least. Total turnover increased by 239% last year. And although the profitability is slim, it is still a small operation. If DocGo is scalable and profit margins grow as it grows, that revenue growth could mean a lot to shareholders down the road. After its SPAC IPO, it ended 2021 with nearly $176 million in cash and just $1.9 million in debt.

Of course, DocGo will have to prove that it is much more than a tech-enhanced mobile ambulance and care provider. If it’s anything more than that, it could be tough for the company as it battles to gain market share in established outpatient and mobile doctor services. But the company claims its platform can electronically dispatch the right professional with the right equipment at the right time, as well as provide mobile medical records and information to the professional administering care.

In other words, DocGo could be a bridge between telehealth and in-person medical visits. Management thinks it will grow at a rate of about 30% in 2022. This stock is still in the “prove it” box for me, but it is on my watchlist.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.


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