Of the many industries labeled “pandemic plays,” digital healthcare is at or near the top of the list.
Digital doctor visits were all the rage — and mandated — at the height of the pandemic, and share prices reflected as much. However, as time went on, pandemic plays subsequently tumbled in epic fashion, regardless of industry. Teladoc (NYSE:TDOC) is the prime suspect for digital healthcare equity retrenchment. Shares of Teladoc are down 78.36% over the past year.
Teladoc’s tumble would appear to damage the case for exchange traded funds, such as the First Trust Nasdaq Lux Digital Health Solutions ETF (EKG), but there’s more to the story.
Comparisons for telehealth growth are tough today following 2020’s exponential growth, but that doesn’t mean the industry is contracting. Nor does it mean that the case for digital healthcare is solely dependent on COVID-19. While telehealth growth is off its pre-pandemic highs, it’s ahead of the levels seen prior to the coronavirus being part of the everyday lexicon.
“Prior to the onset of the pandemic in the United States, telehealth use was a negligible share (rounding to 0%) of outpatient visits. Many enrollees have had increased access to telehealth services over the last two years. During this period, telehealth use soared from less than 1% of outpatient visits before the pandemic to 13% of outpatient visits in the first 6 months of the COVID-19 pandemic. This rate declined to 11% during the next 6-month period, and then to 8% a year into the pandemic (March-August, 2021),” according to Health System Tracker.
EKG, which debuted in March, tracks the Nasdaq Lux Health Tech Index and holds 59 stocks with a median market capitalization of $1.75 billion. That puts the rookie ETF in small-cap territory, and it’s also a growth fund — two factors that aren’t working today.
However, EKG’s struggles out of the gate could lead to opportunity for risk-tolerant investors as the digital healthcare investment thesis is supported by cost efficiencies, potential for improving patient outcomes, and favorable demographic trends, among other factors.
“At the beginning of the pandemic, children and non-elderly adults (ages 19-64) accessed care by telehealth for 18% and 14% of outpatient visits, respectively. Elderly adults (ages 65 and older) used telehealth for only 10% of outpatient visits. As the pandemic has continued, elderly adults have continued to have used telehealth for outpatient visits less than children and non-elderly adults,” concludes Health System Tracker.
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