This Company Could Change Healthcare as We Know It
In Washington, there seems to be little that politicians from different parties agree on. One of the rare areas where agreement is found, and has been found for some time, is in healthcare. The agreement, unfortunately, is not how to fix the problems in the sector. The agreement is that there are problems.
Some private companies are seeking to address the problems in healthcare. Among those are companies like Teladoc Health (NYSE: TDOC)
Teladoc Health noted that the company “is the global virtual care leader, helping millions of people resolve their healthcare needs with confidence.
We have unified the combined capabilities and global market presence of our award-winning consumer experience brands to create the only comprehensive virtual care solution capable of serving organizations and people everywhere.”
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The company offers telehealth platform, delivering on-demand healthcare anytime, anywhere, through mobile devices, the Internet, video and phone.
The company’s solution connects its members, with its over 3,000 board certified physicians and behavioral health professionals treating a range of conditions and cases from acute diagnoses, such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions, anxiety and smoking cessation.
Recent regulatory filings indicate the company served over 7,500 employers, health plans, health systems and other entities. These clients collectively purchased access to its solution for more than 20 million.
Teladoc has more than 30 health plans as clients. Its solutions consist of an integrated technology platform, provider network, consumer engagement strategies and entrenched distribution channels.
The product’s demand is high as the recent earnings report made clear.
Earnings Beat Expectations
The company’s recent earnings report was summarized by StreetInsider.com:
“Teladoc (NYSE: TDOC) reported Q4 EPS of ($0.35), $0.01 better than the analyst estimate of ($0.36). Revenue for the quarter came in at $122.74 million versus the consensus estimate of $120 million.
“We had an exceptional 2018 with solid performance across all of our key financial and operational metrics, enabling us to enter 2019 with significant momentum. As virtual care becomes mainstream, we are uniquely positioned across all of our channels as the only global comprehensive virtual healthcare solution,” said Jason Gorevic, chief executive officer, Teladoc Health.
“We continue to extend our leadership position by delivering the highest quality care, successfully engaging consumers, broadening our scope of services, and expanding our global geographic reach.”
Looking ahead, Teladoc sees Q1 2019 EPS of ($0.46)-($0.44), versus the consensus of ($0.31). Teladoc sees Q1 2019 revenue of $126-129 million, versus the consensus of $131 million.
The stock has been volatile as the long term chart shows.
In the short run, the stock may have completed a short-term bottoming pattern.
A Trade for Short Term Bulls
As with the ownership of any stock, buying TDOC could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for TDOC
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For TDOC, the April 18 options allow a trader to gain exposure to the stock.
An April 18 $65 call option can be bought for about $1.80 and the April 18 $70 call could be sold for about $0.75. This trade would cost $1.05 to open, or $105 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $105.
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in TDOC the maximum gain is $3.95 ($70 – $65 = $5; $5 – $1.05 = $3.95). This represents $355 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $105 to open this trade.
That is a potential gain of about 276% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.