The Facts are Supporting the Justified Enthusiasm for Teladoc Health After falling 54% in 2021, Teladoc Health (NYSE: TDOC) may be getting a closer look from investors. If it is, investors will find that emotions and facts are lining up...

TDOC stock continues to deliver revenue growth that puts it on a path to profit

Shares of Teladoc Health (NYSE:TDOC) are up 5% in mid-day trading the day after a sharp sell-off. The company delivered a double beat in its fourth-quarter earnings report, but that wasn't enough to prop up TDOC stock in a market that was filled with panic selling.

There's an expression in marketing that people buy on emotion and then justify with facts. If we're honest with ourselves, we do the same thing as investors at times.

This serves as an apt analogy to what may be happening now with Teladoc stock. Investors appear to be taking a closer look at the telehealth company. If they do, they will need to reconcile emotion and facts. And in this case, they are lining up quite nicely.

Buy on Emotion, Justify With Facts

The business thesis behind Teladoc Health is simple enough to understand. There are many times when we need medical advice that doesn't necessarily require a visit to a doctor's office. However, this goes beyond non-urgent conditions such as the flu. Patients who have chronic, complicated medical conditions can manage some of their "routine" visits remotely.

This is the emotional side of the story. Investors are also consumers. And we're all consumers of health care. Telehealth in many situations simply makes sense. With that said, Teladoc was expected to see strong growth at the onset of the Covid-19 pandemic. In-person access to medical professionals was largely unavailable for routine conditions.

And sure enough, Teladoc's revenue in 2020 was up 97% year-over-year.

But what investors may not have been expecting is that Teladoc just posted an 86% year-over-year revenue gain in 2021. And the earnings picture is improving. In the fourth quarter, adjusted EBITDA was up 53% year-over-year at $77.1 million. That doesn't mean the company is profitable, nor will it be anytime soon.

These are facts that, to date, investors have been largely ignoring. In 2021, TDOC stock fell 54%. And the stock has continued to drop another 29% in 2022.

Revenue is Becoming Sticky

As I stated, investors may have been expecting that revenue would decrease as access to medical care increased. True, with the Delta and Omicron variants, the re-opening was delayed. But there are three reasons to believe that Teladoc's business model has staying power.

First, patients are showing no hesitancy at continuing with telehealth services even as many insurance carriers are dropping their waivers on co-pays. Second, the company is seeing a benefit from its acquisition of Livongo Health. Livongo's platform provides Teladoc with the data it needs to manage chronic conditions like diabetes. And in the prior quarter, chronic care patients increased 24%.

Finally, although paid membership growth is slowing, the company is seeing strong growth in average U.S. revenue per member which was up 52% in 2021. A big driver of this growth was mental health services. And as chief executive officer Jason Gorevic noted on the company's conference call, those services act "like a gateway for other Teladoc services." As evidence of that, he cited the fact that when a patient uses Teladoc for mental health plus at least one other service, the average revenue is 20% to 60% higher than those who only access the company's mental health services.

How to Invest in TDOC Stock

The bad news is that Teladoc operates in part as a tech stock. And that could mean that some volatility will stay in place. On the other hand, it's a defensive stock because consumers will always have a need for the company's services.

But let's look at the fundamentals. Right now, TDOC stock is trading at just over 5x trailing 12-month sales. And, although revenue is expected to slow down, it's still planning on 25% to 30% revenue growth in 2022. When you combine that with the fact that the company is already free cash flow positive, TDOC stock begins to look very attractive.