Teladoc TDOC stock recently cratered to a new 52 week low following it’s Q1 report. Some of it’s shortfall was attributed by management to longer sales cycles in the insurer and employer space in addition to competitive concerns. But while TDOC is struggling to sign new insurers and employers, DarioHealth DRIO seems to be thriving. In fact, the day after the TDOC report, an analyst covering DRIO, LifeSci Capital, came out with a note speculating that Dario Health is in fact taking business from Teladoc. This analyst reiterated a $31 price target. The stock is currently trading under $5. This represents a 6x potential return.
TDOC and DRIO have traded in lock-step for most of the last two years but since TDOC’s report, DRIO has dramatically outperformed, down just 5%, while TDOC is down a staggering 46%. This divergence in stock performance is a clue that many investors also feel that DRIO may be taking business from TDOC. One reason why risk assets drop in a rising interest rate environment is a higher cost of capital which growth companies need to reach profitability. In some cases, capital may not even be available. These dynamics cause investors to speculate about future dilutive offerings on bad terms which could hammer a stock price and keep it depressed for the long-term.
Due to this concern, StoryTrading recently interview Erez Raphael, the CEO of DRIO to press him on their cash runway and their plan to reach profitability. The interview with Erez left DRIO shareholders and members of the StoryTrading community satisfied that DRIO will avoid toxic dilutions prior to reaching profitability in early 2024. Not only does DRIO sport a cash balance of $80M, but the company is also pursuing non-dilutive lines of credit as a backstop and their new partner, Sanofi SNY, seems likely to make an equity purchase in DRIO sometime this year on favorable terms. Incidentally, Dario met with Sanofi yesterday in New York City. Below is a picture of the two executive teams which was shared on LinkedIn by an executive of Sanofi.
This Thursday, investors will find out if Dario Health is on track to reach profitability in Q1 of 2024. Key will not only be revenue ramp but increased profit margins from the shift towards employer and insurer plans. Seven analysts cover Dario expecting an average of 6.7M in revenue in Q1 and a loss of $0.96 per share. If DRIO can meet or beat these numbers, it could further fuel the narrative that DRIO is taking market share away from TDOC. The StoryTrading community empowers individuals to make the best-informed trade and investment decisions through a holistic view of stocks based on the four pillars of Fundamentals, Catalysts, Sentiment, and Technicals. Analyzing all four pillars together can also help identify key inflection points. Can the catalyst of earnings this week turn investor sentiment up regarding the long-term fundamentals of DRIO? We will find out this Thursday when the Q1 report is revealed.
Disclaimer: The Author has a LONG position in DRIO