American Well vs. Teladoc: Which Telehealth Stock is a Better Buy?

As the pandemic limited access to traditional healthcare services, the telehealth industry witnessed a widespread expansion. As people confined to their houses looked for virtual interactions with doctors and hospitals, the telehealth industry became one of the most coveted segments of the healthcare industry. Given its cost-effective nature, people are expected to opt for telehealth services for non-critical issues even after the pandemic is over. This should allow this industry to grow at a CAGR of 17.7% to reach $70.19 billion by 2026.

Teladoc Health, Inc. (TDOC) is one of the major players in this industry, with over 18 years of industry experience. American Well Corporation (AMWL), on the other hand, is a relatively new player, incorporated in 2006. The company completed its listing on the NYSE in September last year.

Both the companies have generated significant returns over the past three months. While TDOC gained 40.2% over this period, AMWL returned 39%. However, in terms of year-to-date performance, AMWL is the clear winner with 37.7% gains versus TDOC’s 33.5% returns.

But which stock is a better buy now? Let’s find out.

Latest Developments

AMWL made its public debut on September 16th last year, raising over $740 million in gross proceeds during the initial days. The stock has nearly doubled in value since its IPO, and has witnessed a significant rise in the number of users. In order to expand its operations further, the company announced a secondary public offering in January.

On January 14th, TDOC published its Corporate Social Report, outlining its achievements over the past year. The company successfully expanded the global healthcare capacity, while providing equitable and sustainable healthcare. TDOC’s merger with Livongo in October last year allowed the company to stretch its operations significantly, making it one of the largest companies operating in the telehealth space.

Recent Financial Results

AMWL’s total active providers have increased 930% year-over-year to 62,000 in the third quarter that ended September 30, 2020. Total number of visits have increased 450% from the year-ago value to 1,414,000. AMWL’s revenues have risen 80.4% year-over-year to $62.60 million, owing to a 17.3% rise in subscription revenues, and a 295.8% rise in visit revenues.

TDOC’s total number of visits have increased 209% year-over-year to 2.80 million in the third quarter that ended September 30, 2020. Revenues have risen 109% from the year-ago value to $288.80 million, primarily due to a 47% rise in U.S. paid membership revenues.

Past and Expected Financial Performance

AMWL’s revenues increased 30.6% year-over-year, while TDOC’s revenues increased 66.9% over this period. AMWL’s EBITDA and EPS increased 71.7% and 63.3% year-over-year respectively, which compare favorably with TDOC’s declining values.

Analysts expect AMWL’s EPS to rise 59.1% in fiscal 2021. The consensus revenue estimate of $264.90 million for the current year indicates an 11.1% rise from the same period last year.

TDOC’s EPS, on the other hand, is expected to rise 64.3% this year. Analysts expect the company’s revenues to rise 76.9% in fiscal 2021.

Profitability

TDOC’s trailing 12-month revenues is 3.77 times of what AMWL generates. TDOC is also more profitable with a gross margin of 62.7% compared to AMWL’s 37.4%.

Additionally, TDOC’s EBITDA margin of 2.2% compares favorably with AMWL’s negative values.

Valuation

In terms of trailing 12-month price/Sales, TDOC is currently trading at 23.55x, 220.4% more expensive than AMWL, which is currently trading at 7.35x. TDOC is also more expensive in terms of trailing 12-month EV/Sales (44.41x vs 31.04x) and trailing 12-month Price/Book value (10.09x versus 6.41x).

POWR Ratings

Both TDOC and AMWL have an overall rating of D, which equates to Sell in our POWR Ratings system. In total, we rate the stocks on 8 different levels, taking into account 118 different factors with each factor weighted to an optimal degree.

AMWL has a grade of F for Sentiment, reflecting unfavorable analyst expectations regarding the company’s growth potential. It is currently ranked #57 out of 76 stocks in the Medical – Services industry. Click here to see all of AMWL’s Ratings (Growth, Stability, Value, Momentum, Quality).

TDOC has a grade of D for Value, Sentiment, and Stability. These grades are justified, considering the company’s relative overvaluation and risky business model. It is currently ranked #65 in the same industry. You can get all TDOC POWR Ratings (Growth, Momentum, Quality) here.

The Winner

The mass vaccine distribution drive in the United States aims to vaccinate 100 million within the first 100 days of President Biden coming to power. This widespread inoculation drive has reduced the need for social distancing, and is expected to lift all restrictions regarding quarantine requirements soon.

As the country aims to vaccinate the majority of its population within the first half of the year, hospitals should go back to functioning at pre-pandemic levels soon, reducing the demand for telehealth services. Moreover, with Biden planning to bring back Obamacare, the healthcare industry is expected to become more efficient and cost effective soon. Thus, neither of the two stocks — TDOC and AMWL — are suitable investments.

Click here to learn about top rated Medical-Services stocks.

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TDOC shares were trading at $273.67 per share on Wednesday afternoon, up $6.81 (+2.55%). Year-to-date, TDOC has gained 36.86%, versus a 2.52% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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