Are Brighter Times Ahead for HealthEquity Stock in 2022?

HealthEquity (HQY 0.80%) is the foremost provider of health savings accounts (HSAs) in the U.S., but the company got hit hard during the pandemic with an unfortunately timed major acquisition. In this episode of "3 Minute Stocks Updates" on Motley Fool Live, recorded on Feb. 2, host Brian Feroldi shares why he thinks better days could be on the horizon for the stock.

Brian Feroldi: HealthEquity is primarily a provider of retirement and health savings solutions. They are actually the No. 1 provider of health savings accounts in the country. They also provide FSA, which are flexible spending accounts, HRA, which are health retirement arrangements, I think. Commuter benefits, COBRA payments, etc. This is a company that I for one was very excited about when I first started researching it. It had so much going for it. But this stock has done a whole lot of nothing over the last few years. If you look at the recent results, they kind of tell you why. Let's start with the good news. The number of HSA accounts that they signed up during the period were 151,000. That figure was up 48% year over year and brings their total HSA accounts up to 6.2 million. Of those 6.2 million, one of the major moves at the company recently is to allow their HSA holders to invest their savings, invest the money that's in there into funds, and they have a slew of funds that are available, such as Vanguard. When they do that, the company earns a small recurring fee from those investments and the assets get even stickier than they are. Good progress there. Total accounts companywide were up 6% to just about 13.3 million. These numbers do not include the recent acquisition of Fifth Third Bancorp's HSA accounts. They recently bought them, which will bring in another 160,000 new accounts to their platform. Post quarter-end, they actually announced another acquisition, of a company called Health Savings HSA. They're going to spend $60 million adding in an additional 87,000 more accounts. Accounts are growing both organically and inorganically. Total assets that the company holds for its clients were up 32% to 16.4 billion. End of good news.

Now we're going to shift over to revenue, up 1% to $180 million. One percent revenue growth. Not all that exciting. Net loss for the period was $5 million. Although if you look at adjusted EBITDA because this company's financials are complicated, given the acquisitions that it's making, adjusted EBITDA was positive 61 million. You can see there's a wide gap there between adjusted EBITDA and net loss, and shows you how much stuff they have going on in the background. Company's balance sheet improved. A lot of that was due to share issuance, the company now has $650 million in cash compared to over $900 million in debt. What's the big takeaway for me here? HealthEquity really got hit hard by the pandemic. Both because spending on HSA shrank as people were going to the doctors less often. But more importantly, the company purchased a major company called WageWorks, which was really big in commuter benefits. Commuter benefits, for example, nose-dove after the pandemic happened. To combine that with the fact that the company earns revenue in part from holding client funds and then earning interest on them. Similarly, that Paychex and Paycom do, so that business obviously went to zero. More upset, more thing that I'm keeping an eye on is how much of the thesis for this company moving forward is about acquisitions. Because they were always a part of the thesis moving forward, now they seem to be taking center stage for the business. However, when you look forward, interest rates should improve, spending should return, and this company is now in the No. 1 position, and HSA accounts in general are growing with popularity, especially with deductibles on the rise. Not great operational performance, but I think brighter times are ahead.