Shares of Health Insurance Innovations (BFYT) plunged 18.3% as of 3:53 p.m. EST on Friday. The health insurance platform company didn't announce any new developments, so what happened? There were two likely culprits.
First, the overall market experienced a big sell-off as investors worried about global growth prospects after China reported weaker-than-expected industrial output and retail-sales figures for November. Second, some investors could have taken profits after Health Insurance Innovations stock soared on Thursday following the disclosure that the company reached a settlement with insurance regulators in several states over a multistate market conduct examination (MCE) into its sales, marketing, and administration practices.
The main question that investors should ask after a stock sinks is: Do the factors behind the decline impact the long-term prospects for the stock? For Health Insurance Innovations, the answer to this question depends on which factor we're talking about and how long we mean by long term.
Profit-taking isn't a long-term concern. It happens frequently and in no way affects the underlying business for Health Insurance Innovations.
But it's a different story when it comes to macroeconomic factors. If the U.S. economy slows down significantly, consumers could have less money to spend, even on important things like health insurance. Such a scenario likely would hurt the growth prospects for Health Insurance Innovations -- at least as long as the economic slowdown lasted.
Of course, today's overall market decline stemmed from concerns about China's growth -- not events in the U.S. However, world economies are so interlinked that problems in China ripple throughout other economies, as well, including the U.S.
Is it time for Health Insurance Innovations investors to panic? Nope. Actually, the stock is barely below where it was two days ago.
Sure, the global economy could slow down. We could even see another recession in the U.S. with a corresponding stock market correction that pulls Health Insurance Innovations down with it. Remember, though, that historically, the average stock market correction lasts 196 calendar days.
Recent changes by the Trump administration related to short-term health insurance plans should be a boost for Health Insurance Innovations. As a result, the long-term prospects for the company appear to be stronger than they've been in a while.