Please ensure Javascript is enabled for purposes of website accessibility

Here's the Most Likely Reason eHealth Stock Is Crashing Today

By Keith Speights - Jul 24, 2020 at 11:42AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It wasn't the online health insurance provider's Q2 results or its full-year guidance.

What happened

Shares of eHealth (EHTH -6.76%) were crashing 28.9% lower as of 11:31 a.m. on Friday. The company reported its second-quarter results after the market closed on Thursday. Its numbers looked great, though. So why did eHealth stock plunge today?

Perhaps the most likely reason is that investors are concerned about the online health insurance provider's churn rate -- a measure of how many customers leave to shop elsewhere. A few minutes into eHealth's Q2 conference call on Thursday, CEO Scott Flanders stated that the company "saw increased levels of Medicare Advantage plan churn compared to our historical observations." Analysts on the call quickly jumped on this statement, with much of the ensuing question-and-answer period related to eHealth's churn.

Woman with cup of coffee looking at medical insurance screen on her laptop.

Image source: Getty Images.

So what

Investors would be right to worry if eHealth's churn rate is soaring and the company isn't able to address it. Such a trend would indicate significant underlying problems for the business.

However, Flanders said that the company "took action as soon as we identified this dynamic and moved retention initiatives that were already in the works to the top of our strategic and operational priorities." He added, "We are working with urgency to address churn and are confident that we are taking the right actions to build on our strengths and market-leading position."

Some might not buy this confidence. But eHealth appears to be taking the churn issue seriously. At the same time, the company doesn't seem to be overly worried that it won't be able to fix the problem. eHealth increased its full-year 2020 outlook for revenue and earnings and provided an optimistic update to its five-year plan.

Now what

eHealth now must convince investors that its strategy and ability to execute remain strong. In the meantime, it's likely that the healthcare stock will be highly volatile -- just as it has been throughout 2020.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

eHealth, Inc. Stock Quote
eHealth, Inc.
$8.00 (-6.76%) $0.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.