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Why HealthEquity Stock Is Sinking Today

By Brian Feroldi – Jun 3, 2020 at 3:21PM

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Shares plunged after the company reported quarterly results that missed the mark. Here are the must-know details.

What happened

In response to reporting weak quarterly results, shares of HealthEquity (HQY -2.72%), a leading administrator of various types of healthcare-focused savings accounts, fell as much as 11% in early morning trading on Wednesday. As of 2:55 p.m. EDT, the stock was down about 6%. 

So what

The headline numbers from the period weren't great:

  • Revenue jumped 118% to $190 million. That sounds good, but the big jump is mostly related to last year's acquisition of WageWorks. This figure was actually $3 million below Wall Street's estimate.
  • Net income according to generally accepted accounting principles (GAAP) was $1.8 million.
  • Non-GAAP (adjusted) net income was $30.8 million, or $0.43 per share. This figure was up 12% year over year but was short of the $0.44 consensus estimate on Wall Street. 
Three people looking at a computer screen and acting concerned

Image source: Getty Images.

It gets worse.

Management decided to abandon its full-year guidance in response to the uncertainty. However, it offered up some figures for the upcoming quarter, and the numbers don't look pretty. 

  • Revenue is expected to land between $168 million and $173 million. That's far below the $191.5 million that was previously expected.
  • Non-GAAP net income is expected to land between $17 million and $22 million, or between $0.23 and $0.30 per share. That's well short of the $0.45 that analysts were looking for.

Given the worse-than-expected results and guidance, it's no surprise to see the share price retreating today.

Now what

On the call with investors, CEO Jon Kessler offered reasons for optimism in spite of the weak results.

"We think the pandemic's short-term disruption and its hit to our financial performance have actually strengthened our culture and they've certainly accelerated our synergy attainment," he said. "We believe this moment has permanently accelerated market trends that were already in evidence before the pandemic that favor those like HealthEquity with operating scale, with product depth, with proprietary technology, and with solid cultural foundations."

In other words, he believes that the short-term pain will result in the company emerging stronger than ever once the recovery takes hold.

It's too early to say whether or not his optimism is correct, and the guidance for the upcoming quarter suggests that the situation is going to get worse before it gets better. However, this long-term bull continues to believe that the trend toward health savings accounts will only grow from here.

My plan is to remain patient with this high-quality healthcare stock through this trying period. 

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

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