Two stocks reporting 4Q21 earnings next week that I’m zeroing in on are virtual health care provider Teladoc (TDOC) and payments company Block (SQ). TDOC is the #2 holding of Cathie Wood’s Ark Innovation ETF (ARKK) and SQ #10 so their reaction to earnings will have implications for ARKK as well (which I covered short and went long Friday).
As much as I poke fun at Cathie and have profited significantly by shorting ARKK, the stocks in her fund are by no means penny stocks. They are early stage growth companies and, while speculative and highly risky, some of them will be great long term winners (though others will be major losers).
Let’s start with TDOC which reports Tuesday afternoon. While the stock is down almost 80% from its high a year ago and the chart looks like it’s going to $0, TDOC is a legitimate business with solid fundamentals. The main problem was extreme valuation – but an 80% drop goes a long way toward remedying that.
TDOC had 3.885 million patient visits in 3Q21 resulting in $522 million in revenue. In their 3Q21 Earnings Report, TDOC guided 2021 revenue to $2,015-$2,025 million and Adjusted EBITDA to $260-$265 million. At its current valuation, TDOC is therefore trading for 5x current year revenue and 40x Adjusted EBITDA. That is by no means out of line for a fast growing company. I see no reason why 4Q21 results won’t be fine and therefore believe TDOC is close to a significant bottom – even if its not THE bear market bottom for the stock.
A similar analysis applies to SQ which reports Thursday afternoon. The stock is down about 65% over the last 6 months but this is a real business with strong fundamentals. SQ is divided into two segments, one for the payment device used by brick and mortar merchants and the other for Cash App.
SQ revenue grew 27% in 3Q21 to $3.8 billion and they earned $1.44/share through the first three quarters of 2021. They should earn ~$1.80/share in calendar year 2021 giving the stock a P/E multiple a bit north of 50x on current year earnings. Again, that is not unreasonable for a fast growing company. As with TDOC, I see no reason why 4Q21 results won’t be just fine and am therefore on lookout for A bottom – even if it’s not THE bear market bottom – in SQ stock.