Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What's happening: Two days after presenting at a Wall Street industry conference, shares of the cloud-based healthcare benefits company Benefitfocus (NASDAQ:BNFT) soared higher by as much as 10% on news that it had inked a deal to provide its services to a U.S. construction unit of the Mexico based Empresas ICA, S.A.B. de C.V. (OTC:ICAYY).
Why it's happening: Benefitfocus climbed sharply last month after reporting that insurance giant Marsh & McLennon Cos (NYSE:MMC) Mercer unit was acquiring a 9.9% stake in the company at a price of $26.50.
That deal gives Benefitfocus the financial flexibility to expand its benefits products and services, as well as nets the company a highly respected and deep-pocketed partner. Both of those advantages could help Benefitfocus successfully close larger and more complex deals, making shares more attractive to investors.
During Benefitfocus' March 3rd presentation at the Raymond James Conference, the company outlined a strategy that includes increasingly winning large accounts. During 2014, the number of large employers that were using the company's services grew to 553, up 59% from when Benefitfocus went public in 2013.
Although the financial terms of the agreement with the Facchina Construction unit of Empresas ICA, S.A.B. de C.V. weren't released, Benefitfocus will provide a multilingual automated software system to the company that can be used to track benefits, as well as act as a multilingual extension of the unit's HR team that responds to employee benefits questions.
Now what: Investors are likely relieved by the recent slate of positive news coming out of the company. After peaking at more than $75 following its IPO, shares in Benefitfocus had dropped to less than $20 earlier this year. That means that there's still a lot of work left to be done to get back to its prior highs. This news is encouraging; however, investors might not want to get too excited about Benefitfocus' growth, which includes a 31% lift in sales last year, because the company remains unprofitable. Despite gross margins of 36%, Benefitfocus' adjusted EBITDA margin was a negative 32% in 2014. That has Wall Street analysts projecting that the company will lose $2.13 per share this year and $1.66 next year. As a result, until the company can prove that it can turn a profit, I'm going to stay on the sidelines.