After reporting a secondary offering of shares, shares of Health Insurance Innovations (NASDAQ:BFYT) are losing 10% of their value at 12:30 p.m. EST Wednesday.
Health Insurance Innovations shares have been rallying on rising policy demand for its short-term health insurance and hospital indemnity plans. In 2016, the company reported sales of $184.5 million, up 76.2% versus 2015, and net income of $4.5 million, up from $0.6 million in 2015. Adjusted earnings per share for the full year grew to $1.12 in 2016 from $0.27 in 2015.
On March 7, management updated investors on plans by the company's founder, Mike Kosloske, to sell 3 million shares of Class A stock in the company through a secondary offering. The offering was priced at $14 per share and none of the proceeds of this offering will go to the company. Kosloske moved from the CEO role to the executive chairman role at Health Insurance Innovations in 2015.
With shares near their all-time highs, it's hard to blame Kosloske for cashing in. Because owners often sell shares for various reasons, investors may want to focus less on his activity, and more on the potential opportunity and risks associated with this company's business model.
Sales and profit are growing quickly, and the company's outlook for 2017 is strong. Management's forecast is for sales to grow at least 15% and profit to grow more than 20% year over year.
However, there's significant uncertainty in health insurance markets right now. It's unclear how a repeal of Obamacare and fees associated with the individual mandate might impact demand. On one hand, it could boost the viability of short-term solutions. On the other, many people may forego any coverage without there being a tax hit. The company could also see tailwinds or headwinds depending on how state regulation plays out, and how consumers view competing insurance solutions once deregulation occurs.
This is a growing and profitable small cap stock that's intriguing, but investors might want to add it to a watch list until all repeal-and-replace regulatory details get figured out.