Take Long View

What: After reporting that its largest customer, the New Jersey Department of Human Services, is shifting its business to a competitor, shares in HMS Holdings Corp (NASDAQ:HMSY) dropped by more than 17% earlier today.

So what: In April, HMS Holdings reported in its quarterly filing that it had signed a 3-month extension with the State of New Jersey that expires July 31. HMS Holdings also said that if it failed to reach an agreement to further extend its contract with the State of New Jersey that its impact would be material to its financial condition, results of operations, and cash flows.

Because the company has indeed failed to secure the contract extension, investors are flocking to the sidelines until they can determine just how big this impact will be.

Now what: Healthcare payers contract with HMS Holdings to coordinate benefits and reduce fraud, and demand for those services isn't likely to abate given the overall increasing trend in healthcare costs.

However, since there's little question that the loss of the New Jersey contract will create significant short term financial uncertainty for HMS Holdings investors and because it will be awhile before its risks are sorted out, I'm unwilling to step in and pick up shares on this tumble.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.