With its YTD loss of over 33%, Teladoc Health (TDOC) is underperforming the S&P 500 Index ($SPX) by a wide margin. The stock peaked at a closing high around $295 in February 2021, and has been sliding ever since - including a 74% fall in 2022.

TDOC was in the red last year, as well, even as the broader markets rallied. While TDOC stock has burned a big hole in investors’ pockets and many former bulls have looked the other way, Cathie Wood of ARK Invest doubled down on this underperforming telehealth stock last year. Her ARK Investment Management is the biggest shareholder of Teladoc Health, and owns a 12.71% stake in the company.

Meanwhile, TDOC stock is now trading very near its record lows, even as the wider markets have recently hit record highs. Here’s how low the stock can go from these levels as investors shun perennially loss-making companies.

Why Is Teladoc Health Stock Falling?

The key reason Teladoc Health is falling - alongside other former “stay-at-home” winners, like Chegg (CHGG) and Zoom Video Communications(ZM) - is due to sagging growth. For instance, TDOC’s revenues rose 98% and 85.8% in 2020 and 2021, respectively. By contrast, in 2022, sales growth fell to 18.4%, while last year’s top-line growth was a mere 8.1%. 

Analysts expect Teladoc Health’s revenues to rise 2.4% in 2024 and 3.9% in 2025. Far from being a “growth company,” Teladoc’s revenue growth over the next two years is expected to arrive below even that of the S&P 500.

To make things worse, Teladoc Health has been posting consistent losses. While the company has been generating positive free cash flows, it has a hefty stock-based compensation. Last year, the company’s stock-based compensation was $201.6 million - which, for context, was around 7.7% of its sales and more than the free cash flows it generated during the year.

While it is customary for companies to exclude stock-based compensation from expenses and instead harp on “adjusted earnings,” Warren Buffett mocked the practice in his 2018 annual letter, wondering whether stock-based compensation is a “gift” from shareholders.

Teladoc Health Long-Term Outlook

Looking ahead, Teladoc Health expects its revenues to rise in the low to mid-single digits annually over the next three years. It is, however, working on cost efficiencies, and expects its margins to expand between 50-100 basis points annually over the period. The company forecasts that its 2025 adjusted earnings before interest tax, depreciation, and amortization (EBITDA) will be at least $425 million.

Teladoc Health is also working on GAAP profitability, and expects stock-based compensation to fall over the next three years, including by around $20 million this year.

How Low Could TDOC Stock Go?

Meanwhile, even the most vociferous bears don’t expect TDOC stock to fall any further, considering that the stock’s Street-low target price of $16 is higher than the current price levels. The mean target price of $20.55 is 38% higher than yesterday’s closing prices.

Overall, most brokerages are neutral when it comes to Teladoc Health, and around three-quarters of analysts covering the stock have rated it as a “Hold” or some equivalent. 

TDOC Stock Looks Undervalued

Teladoc Health might not revert to the kind of growth that it witnessed between 2020 and 2021, and the company is now adjusting its business to the changed macro environment. It has 90 million virtual care members which presents attractive cross-sell opportunities. Teladoc Health is also working on new growth areas, like pediatrics and weight management, while also pushing for international expansion. 

At the same time, the stock's next 12-month (NTM) price-to-sales multiple is 0.93x, which is near record lows, while the NTM enterprise value (EV)-to-EBITDA multiple is just over 8x. While Teladoc Health’s growth has sagged, I believe the stock is too cheap to ignore at these levels, and could be very near its bottom given the attractive risk reward.