My reasoning was straightforward... First, I believed that the surge in patient demand that Teladoc was then experiencing was not going to be permanent. I had faith that life would get back to something closer to normal and that people would prefer going to see their doctors in person again. Second, I believed that the valuation of Teladoc's stock was ridiculously high. My view was that far too much optimism was priced into Teladoc's stock. Subsequently, I've been proven correct. Since I published that analysis on April 9, 2020, Teladoc's shares have dropped from $150 per share to under $30. That was a brutal 80%-plus decline. Which makes me wonder... While the market got way too optimistic about Teladoc during the pandemic, perhaps it has now gotten too pessimistic? We repeatedly see that hot stocks that crash often become good bargains after investors have given up on them. Tech stocks after the internet bubble collapsed is one obvious example. American banks and homebuilders after the 2008 financial crisis is another. A quick look at Teladoc's price-to-sales valuation certainly shows a dramatic change in how the market values this business. After trading at a gaudy 32 times sales at one point in 2020, the stock has dropped to trading at just two times sales. That is a massive revaluation! But does that necessarily mean the stock is a bargain? |
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