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Why HealthEquity Is Tanking Today

By Brian Feroldi – Dec 6, 2018 at 11:44AM

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Shares tumble even though its third-quarter results beat estimates. What can explain the decline?

What happened

In response to reporting of third-quarter earnings, shares of HealthEquity (HQY 1.93%), a leading provider of health savings accounts, fell 13% as of 11:30 a.m. EST on Thursday.

So what

Here's a look at the key numbers from the company's third quarter:

  • Revenue jumped 24% to $70.5 million. That was ahead of the $69.8 million in revenue that Wall Street had expected.
  • HSA membership grew 22% to 3.7 million.
  • Custodial assets under management grew 27% to $7.1 billion.
  • GAAP net income soared 50% to $15.7 million, or $0.25 per share. 
  • Non-GAAP net income grew 64% to $0.28. That was ahead of the $0.25 that Wall Street expected.
Businessman using magnifying glass to examine a piece of paper.

Image source: Getty Images.

The upbeat third-quarter results caused management to boost full-year guidance, too:

  • Revenue is now expected to land between $281 million and $285 million. That represents a $2 million bump from the bottom end of management's prior guidance range.
  • Net income is expected to be in the range of $66 million to $70 million, or $1.03 to $1.09 per share.
  • Non-GAAP net income is expected to land between $68 million and $72 million, or $1.06 to $1.13 per share. Management had previously guided for $1.05 to $1.11 in non-GAAP EPS.

So if the quarterly results were good and management boosted guidance, why are shares falling today? The most likely answer is that Wall Street was expecting an even larger increase to guidance. Market watchers are currently expecting $284.3 million in sales and $1.12 in non-GAAP EPS for the full year. Traders are likely knocking down the share price because the midpoint of management's range is a bit shy of these estimates.

Now what

I think there's an argument to be made that Wall Street is missing the forest for the trees today. HealthEquity's third-quarter results showed double-digit revenue growth, margin improvements, and a 64% jump in adjusted earnings. Those are fantastic numbers in absolute terms and help to reaffirm the bull case for owning this stock.

Overall, my view is that HealthEquity's growth story is still very much intact. With shares currently trading at a discount, I think it is a great time for growth-focused investors to buy into this exciting growth story.

Brian Feroldi owns shares of HealthEquity. The Motley Fool owns shares of HealthEquity. The Motley Fool has a disclosure policy.

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