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  • Brett Schafer

Why I’m Not Selling My Shares of Teladoc

I got lucky. Heading into this crisis, 5% of my portfolio was in one of the few companies that would benefit from a pandemic: Teladoc Health (ticker: TDOC). The stock is up 71% in the past month due to a huge increase in demand for virtual healthcare, and it has officially become one of the “hot” stocks talked about on CNBC. I didn’t buy shares for either of those reasons, but hey, I don’t mind the returns.

(Twitter thread on Teladoc’s conference call)

Teladoc’s business has exploded recently, as you might expect. Visits are up over 100% on a per-day basis from a month ago, and they just boosted revenue guidance for the 1st quarter. Here is an excerpt from the press release:

“As a result of the global outbreak of COVID-19, Teladoc Health has experienced an unprecedented surge in demand for its services. The company is now routinely providing in excess of 20,000 virtual medical visits per day in the United States, representing an increase of over 100% as compared to the first week of March. As a mission driven organization, Teladoc Health has stepped up in this time of need to address physical delivery system limitations to ensure that those in need have access to high quality care from a physician.”

With the stock now making up around 10% of my portfolio, I’ve considered trimming or even selling to lock-in these gains. However, I ultimately decided against it, even with shares trading at an EV/sales of 22.5. Here’s why.

Nowhere Near Market Saturation

The percentage of doctors visits on the Teladoc platform is nowhere near how large it could be. Yes, the majority of their revenue does not come from single-use fees (it comes from the insurance companies/employers), but visits are a strong indicator of their pricing power and revenue potential over the long-term.

Right now, at peak pandemic levels, there are 20,000 virtual medical visits a day on Teladoc. Annualized, that is 7.3 million visits a year, assuming demand stays elevated post-crisis. In 2016, just in the United States, there were 883.7 million in-office physician visits, or 121-times the peak current demand on Teladoc’s platforms.

A lot of visits need to be at an office, whether because of blood testing or other physical measurements. But 20, 30, or possibly even 50% of these visits could be done virtually. That’s hundreds of millions of visits that will eventually transition to virtual. And who is the clear leader in this sector? You guessed it, Teladoc.

I Have No Idea What the Stock Will Do

It’s clear everyone is pricing in a huge amount of growth for Teladoc. EV/sales (trailing, mind you) is now 22.5, a precarious valuation for any company. The sales growth will have to be strong, and be strong for a while, for this current price to hold up.

But again, I’m not selling any shares here. Why? Because I have no idea where the stock will be in a few months. There is a huge risk in trying to call the top, selling, and then waiting for a 30% drop that may never come. It could come, but it’s not guaranteed. That is why, even with the stock up so much, I’m not touching any shares.

Now, if the stock doubles again from here, there’s no doubt I would trim or sell all of my stake. That would be too much growth priced in. It would put Teladoc in the same sphere as Virgin Galactic, Beyond Meat, and Tesla when they were at all-time-highs, and that is not the place I want to put my investing dollars.

The Less Decisions the Better

A study last year showed that portfolio managers are terrible at selling stocks. Typically good at buying, but horrible at selling. This is probably why the buy-and-hold forever strategy has done so well for investors: because it requires simple execution with little decision making. You’re likely to make mistakes if you try to sell positions regularly. So why even do it in the first place?

I’m trying to minimize the amount of selling within my personal account. That means being extra critical of any stock that I buy, so I hopefully don’t end up selling it for a long, long time. Corona has thrown a slight wrench in this mix, as it has jumbled the entire global economy, and been an influence for why I sold Disney and It might end up being the reason why I sell Teladoc, because the stock/story gets too ahead of the underlying business.

I hope it doesn’t ever come to that, and I hope this crisis doesn’t cause me to sell any more of my long positions. But we all know selling is something you eventually have to do, whether in 20 years or next week. I hope for Teladoc it isn’t anytime soon.

Disclosure: The author is not a financial advisor, and may have an interest in the companies discussed.

#Stocks #Investing #Teladoc #VirtualHealth #selling #HotStocks #Finance

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Listen On: Spotify Apple Podcasts Disclosure: The author and podcast guests are not your financial advisors. Ryan Henderson and Brett Schafer are general partners and portfolio managers at Arch Capita

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