Time for Investors To Revisit the Pandemic Winners? – September 16, 2022

A handful of stocks benefited greatly during the initial phases of the pandemic. It was a fascinating time to be an investor, and those who focused on stocks to stay home were handsomely rewarded with sizable profits.

In 2022, these previously seemingly unstoppable investments have found themselves in the red, leaving dents in many portfolios. The Fed’s tightening cycle has hit many of these high-growth pandemic winners hard.

Three stocks that gained huge popularity during the period include Teladoc (TOC Free Report), Zoom Video Communications (ZM Free Report) and Peloton Interactive (PTON free report).

Below is a YTD chart showing the performance of the shares of the three companies with the combined S&P 500 as the benchmark.


Image Source: Zacks Investment Research

It begs a valid question: are these massive one-time winners still worth investors’ attention? Let’s take a closer look.

teladoc

Teladoc Health (TOC Free Report) can conveniently diagnose and treat most non-emergency conditions like the flu, seasonal allergies, upper respiratory infections and more by phone or video in the comfort of your home.

Analysts have upgraded their earnings outlook in various time periods over the past few months. TDOC carries a Zacks #3 rank (hold).

Zacks Investment Research
Image Source: Zacks Investment Research

TDOC’s valuation multiples have fallen significantly amid adverse share price action.

The company currently has a forward price-to-sales ratio of 2.1X, a fraction of its five-year average of 9.8X and representing a slight 1% premium to its Zacks medical sector.

Zacks Investment Research
Image Source: Zacks Investment Research

The company’s quarterly reports have been strong of late: TDOC has beaten earnings estimates in each of the last four quarters.

Quarterly revenue has also been consistently above expectations, with the company posting nine profits in its last ten quarters.

TDOC has a very favorable revenue trend, as we can see in the following graph that illustrates the company’s revenue on a quarterly basis.

Zacks Investment Research
Image Source: Zacks Investment Research

Zoom Video Communications

Zoom Video Communications (ZM Free Report) uses a cloud-native unified communications platform, which combines video, audio, phone, screen sharing, and chat capabilities, making remote work and collaboration easy.

Analysts have been overwhelmingly bearish in recent months, cutting their earnings outlook across the board. ZM has a Zacks rank #3 (hold).

Zacks Investment Research
Image Source: Zacks Investment Research

ZM’s valuation levels have fallen sharply, but remain elevated: the company’s 5.4x forward price/sales ratio is nowhere near its median of 30.9x since its 2019 IPO, but it represents a hefty 62% premium relative to its Zacks sector.

Zacks Investment Research
Image Source: Zacks Investment Research

However, ZM has an impressive earnings track record: The company has beaten the Zacks Consensus EPS estimate in each of its last ten quarters.

Top-line results have also been strong; Zoom Video Communications has posted nine revenue beats in the last ten quarters.

Zacks Investment Research
Image Source: Zacks Investment Research

Interactive Platoon

Platoon (PTON Free Report) main products are Internet-connected exercise bikes and treadmills, which allow monthly subscribers to participate in classes via streaming media remotely.

Analysts have lowered their earnings outlook on almost every time frame over the last 60 days. PTON carries a Zacks #3 rank (hold).

Zacks Investment Research
Image Source: Zacks Investment Research

PTON’s valuation multiples have fallen sharply amid the stretch of bad price action; The company’s 1.1X forward price-to-sales ratio is nowhere near its median of 5.9X since its September 2019 initial public offering and represents a notable 41% discount relative to its US consumer discretionary sector. Zacks.

Zacks Investment Research
Image Source: Zacks Investment Research

Lately, the company’s quarterly reports have left a lot to be desired: PTON has missed revenue and earnings estimates in each of the previous three quarters. In its last quarter alone, Teladoc posted a huge 85% loss in earnings and a marginal 0.7% loss in revenue.

Zacks Investment Research

Image Source: Zacks Investment Research

Bottom line

Investments that once seemed unstoppable, the tide has turned significantly for the winners of the pandemic in 2022 amid the Fed’s turn to an aggressive nature.

Analysts have lowered their earnings estimates and the stock has tumbled. However, valuation multiples have fallen significantly, perhaps indicating that long-term investors may consider taking an interest.

However, a much better strategy would be for investors to wait until positive revisions to earnings estimates start rolling in.

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