Teladoc rises on increased demand, should you buy this high risk play?
Teladoc Health stock is setting up for a good short-term trading opportunity after Jefferies analysts noticed the possibility of a short-term surge due to increased demand.
The brokerage house has boosted its price target on the stock from $8 to $10.
The short-term optimism comes from the analysis of the web traffic to the company’s mental health business website, BetterHelp.
The web traffic was consistently declining for the last 12 months. However, July and August traffic has shown an increase in demand for the company’s mental health services.
Analysts are already estimating an 11% decline in revenues for the BetterHelp division in the third quarter.
Overall, they expect a 5% drop in revenue. The web traffic data has prompted them to reevaluate their expectations of the company’s earnings.
Combining the above information with the fact that Teladoc has a 16% short interest, there is room for a short-term rally in the stock.
As interest rates start going down, beaten-down stocks could produce a rally simply because of the availability of cheaper money.
New management is driving optimism
On the 10th of June, Teladoc appointed Charles Divita as its new CEO. This would usually be considered good news. But it didn’t stop the stock from continuing to slide.
The new CEO withdrew guidance for the fiscal year 2024 and also dropped the 3-year outlook. This would usually be considered a high risk move. Some would even call it a sign of bad management.
However, for a stock that was down over 95% from its all-time highs, it wasn’t a big deal.
Three months on, one can observe a noticeable change in trend. This stock is recovering.
And the web traffic data is pointing to an increase in people using Teladoc’s services. Whatever the new CEO did in the three months he has been in charge seems to be working.
A manageable debt situation
The company has $1.6 billion in convertible notes outstanding. Half of these mature in 2025.
Its cash position of $1.16 billion would help it cover the $800 million due next year. A health-positive free cash flow should cater to the rest of the payment too.
Shareholders should be alert for one thing though. Convertible notes can also be converted into equity. If that happens, existing shareholders will get diluted.
To conclude, Teladoc’s healthy cash position, positive cash flow, and determined management should help it finally recover from a horrible stock slump.
The short interest and a changing trend should be good enough reasons for traders to drive the stock price up.
An entry at this point could be a safe bet because of the short-term triggers. If they materialize, holding the stock for the long term will become easier, though the journey will be volatile.
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