What happened

Shares of Ontrak (OTRK 13.91%) tumbled this morning, continuing yesterday's slide after the company said it lost yet another large customer. Today, some analysts downgraded the telehealth stock in response to the news, but it recovered nearly all of those losses by the afternoon as some investors saw the sell-off as a buying opportunity, including an analyst from Benchmark.

As of 1:20 p.m. EDT on Friday, the stock was down 2.9% after trading as much as 18.6% lower earlier in the session. Yesterday, the stock plunged 45%.

An older man talking to a doctor on a computer.

Image source: Getty Images.

So what

In a filing yesterday, Ontrak said it was notified by a large customer, believed to be Cigna, that it would be ending its contract early due to what Ontrak believed to be a change in its corporate strategy. The contract was for three years and $90 million, and Ontrak had so far billed $42 million. Its most recent guidance called for $80 million to $85 million in 2021 revenue, so Cigna's portion represents more than a third of the total.

This morning, a number of analysts downgraded the stock. B. Riley lowered its price target on Ontrak from $58 to $15 and cut its rating from buy to neutral. Cowen also downgraded the telehealth stock to underperform from neutral, and Benchmark lowered its price target from $35 to $16, but maintained a buy rating, with analyst Bill Sutherland arguing that the company's value proposition remained intact.  

Now what

Ontrak has been unusually volatile during the pandemic, when the stock jumped to nearly $100 a share earlier this year as some investors imagined it as another Teladoc. The stock plunged soon after, when it was forced to slash its revenue guidance after it lost another major customer. It now trades for less than $12 a share.

In its filing, Ontrak said it continues to add new customers, and revenue from its remaining customer base should grow 62% next year. If the two customer losses prove to be isolated events, this could be a buying opportunity, but it's hard not to be cautious with the stock given that it's fallen by nearly 90% since February.