If you had bought Tesla (TSLA) five years ago and held on through some serious ups and downs, you would currently be showing a profit of well over 2,000%. That kind of performance is the holy grail of investing and, to achieve it, you have to take on some serious risk, and withstand some withering and often vicious criticism of a company in its early days. However, if you are sensible about the amount you allocate to the investment and truly believe that an industry is destined to explode, it can be worth buying into an early leader in a business.
That situation appliers to the telehealth company Teladoc (TDOC) right now, and there is a decent chance that this stock will mimic TSLA in several ways.
Teladoc gained fame, or in some cases notoriety, as Covid-19 gripped the world. They were a leader in providing an obvious solution to an enhanced need for healthcare and a reluctance to meet with even a doctor in person. As a result, TDOC surged over 300% in the first eight months of 2020 then, after a pullback, jumped again in the risk-on atmosphere of early 2021 to reach a peak of $308 in February of this year, a 371% increase from the end of 2019.
A massive miss on earnings shortly after that high changed all that. The conventional wisdom became that costs were out of control, with no plan to rein them in, and that there was no clear path to ever reaching profitability. The short sellers took over and the stock lost 60% in six months. Long-term TSLA owners will be familiar with that kind of price action but will be aware that it doesn’t matter. TDOC, like TSLA in its early days, got ahead of itself, but the underlying story never changed.
There was, however, another reason the selloff gained momentum. In March, Amazon (AMZN) announced that they were expanding their telehealth offerings, raising concerns that the giant would overwhelm the upstart. Again, TSLA investors will get a sense of déjà vu here. When, almost inevitably, the big auto manufacturers gave in and committed to producing EVs, the bears, and those with short positions of course, told us all that that competition from the giants would be the end of Tesla. We can best see how that played out by comparing TSLA to GM (GM) and Ford (F) on a two-and-a-half-year chart:
Obviously, AMZN is not Ford or GM, but the point is that rapid, exponential growth in a market makers competition both inevitable and often almost irrelevant for an early market leader.
It has been a bumpy road, but the fact is that Tesla has remained the leader in an industry that has fulfilled what to many people was its obvious potential. As that has taken place, many of the criticisms and fears that bears and doubters have shown were found to be unwarranted. Tesla had a quality product and first-to-market advantage that enabled them to be the primary beneficiaries of a rapidly growing market, despite intense competition. Profitability, which we were told was never coming, was easily achieved once the scale of operations reached the tipping point.
There is no guarantee that things will play out exactly like that for TDOC, but the first prerequisite, a rapidly growing market, is coming. Healthcare costs are a major problem in the U.S., and telehealth is one way to reduce them. Providers that see the benefit of a reduced need for office space and the efficiency of online visits will favor them over in-person appointments, as will the payers who ultimately control healthcare in America. Before long, people will look back and wonder why they ever visited a potentially disease-ridden doctor’s office for an initial consultation.
Even if Amazon or some other competitor does commit to telehealth, growth like that will expand the industry enough for everyone to benefit. TDOC has an “early adoption” advantage and brand recognition that positions them to grow with their market, and volatility and criticism early in their journey do nothing to change that. There will be some massive volatility and the possible downside is huge, but the potential upside makes accumulating a small position in TDOC and riding out the bumps look like a risk worth taking, just as it was with TSLA a few years ago.
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