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Why eHealth Stock Dove 30% in July

By Demitri Kalogeropoulos – Updated Aug 7, 2020 at 8:18AM

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Investors are worried about an uptick in cancellation rates.

What happened

eHealth (EHTH -0.98%) stock trailed a booming market last month as shares lost 30% compared to a 5.5% rally in the S&P 500 in July, according to data provided by S&P Global Market Intelligence.

The decline put the stock in negative territory for the year, down 23% compared to a 3% increase in the broader market.

A patient consults with a doctor online.

Image source: Getty Images.

So what

Shares slumped following the online health insurance provider's second-quarter report -- even though that announcement showed strong sales growth and a near doubling of adjusted profits.

Investors looked past those encouraging headline results to focus instead on a potentially worrying uptick in customer cancellations. CEO Scott Flanders said in a conference call that executives have a "comprehensive action plan" aimed at addressing the issue.

Now what

The big concern is that rising cancellations indicate a shaky market share position, or other challenges with eHealth's customer acquisition strategy. On the other hand, management boosted its outlook for the rest of 2020, suggesting the retention problem may be more of a short-term issue.

Investors will have to wait until the healthcare company's next earnings report, in late October, to get clarity on whether eHealth has a potential growth challenge on its hands.

Demitri Kalogeropoulos 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.

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