Shares of Teladoc Health (NYSE:TDOC) were tumbling 12.1% this week as of the market close on Thursday, according to data from S&P Global Market Intelligence. The decline came as the stock market fell over the past few days.
One key reason behind the stock market’s decline was concern about the emergence of the omicron variant. Another factor causing growth stocks in particular to sink was the fact that the minutes from the Federal Open Markets Committee’s November meeting revealed that the Federal Reserve could raise interest rates sooner than expected to fight inflation. Many high-growth companies rely on debt to generate capital. Higher interest rates can result in higher interest expenses and lower profits.
It’s possible that Teladoc’s business could actually be helped by the emergence of the omicron variant. Worries about COVID-19 caused many people to use telehealth services last year. If the omicron variant proves to be especially problematic, history just might repeat itself.
Rising interest rates could be more of an issue for Teladoc, but not in the near term. The virtual-care leader’s total interest expense in the third quarter of 2021 represented only 3.6% of revenue. Much of this interest expense was for convertible notes that have set rates.
Teladoc will likely have to raise additional capital down the road, though, through borrowing from financial institutions or issuing notes. Higher interest rates would increase the ongoing interest expense for the company.
Investors will want to watch to see how the omicron variant impacts Teladoc in 2022. The company also has a new contract with large health insurer HCSC going into effect at the beginning of the new year, and a key new product, Primary360, that is building momentum. Both could serve as growth drivers. Teladoc stock could have plenty of room to run despite its dismal performance this year.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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