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Why Teladoc Stock Plunged 12% on an Up Day for the Market

What happened

Lawmakers in Washington appear close to finalizing a plan to begin mailing out coronavirus stimulus checks to American taxpayers -- and to unleash a flood of money, trillions of dollars in depth, to support companies that are struggling under the strain of the coronavirus. Stock markets have responded favorably to the news.

Teladoc Health (NYSE: TDOC) stock, however, is down 12% as of 3:35 p.m. EDT. What's up with that?

Red arrow swoops up and blue arrow swoops down

Image source: Getty Images.

So what

Early this morning, according to TheFly.com, analysts at investment bank Craig-Hallum cut their rating on Teladoc stock from buy to hold, while leaving their price target of $140 a share unchanged.

As C-H explained, Teladoc's business of telemedicine in the age of COVID-19 has become "THE (capitalization theirs, not mine) focus for investors in the stock." The implication seems to be that if and when America defeats the virus, enthusiasm for Teladoc stock might quickly wane.

Now what

Is this something investors should worry about?

Perhaps, yes. Consider that although Monday, Teladoc CEO Jason Gorevic said his people are working "around the clock" to supply demand for remote counseling using Teladoc, at last report, the company was still not profitable under generally accepted accounting principles (GAAP). (Although Teladoc did generate $26.4 million of positive free cash flow last year.) The presumed massive increase in revenue may have been enough to turn Teladoc profitable in the first quarter -- or not.

Whichever proves to be true when Teladoc next reports earnings, the fact remains that Teladoc stock has already more than tripled in value over the past year. Given all the profits the stock has produced for its investors already, C-H worries that these investors may now be tempted to use Teladoc stock as a "source of funds" -- i.e. sell Teladoc stock -- that they can then invest in stocks that have not gone up so much.

Granted, the longer the coronavirus crisis persists, the less likely that is to happen, but that's probably not a future we should be hoping for.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Teladoc Health. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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