Why Shares of Inovalon Holdings Inc. Crashed Today

By Timothy Green Markets Fool.com

Image source: Inovalon Holdings.

Continue Reading Below

What happened

Shares of Inovalon Holdings (NASDAQ: INOV), a provider of cloud-based analytics solutions for the healthcare industry, tumbled on Tuesday after the company slashed its full-year guidance. Inovalon now expects revenue and earnings to be substantially lower than previously expected, with the change driven by the company's failure to enter into an anticipated agreement. At 11:45 a.m. EST, the stock was down about 36%.

So what

Inovalon has been negotiating a multi-year collaboration agreement with an unnamed counterparty over the past nine months, and the company expected a deal to be reached during the fourth quarter. However, Inovalon was informed by the counterparty on Dec. 7 that an unexpected material development unrelated to Inovalon's products would prevent any transaction from taking place. Inovalon was expecting the deal to contribute about $40 million of revenue during the fourth quarter.

This development prompted Inovalon to significantly reduce its guidance for the full year.

Continue Reading Below

Metric

Old Guidance

New Guidance

Revenue

$470 million to $490 million

$426 million to $428 million

Net income

$43 million to $53 million

$25 million to $26 million

EPS

$0.28 to $0.35

$0.16 to $0.17

Non-GAAP EPS

$0.39 to $0.46

$0.32 to $0.33

Data source: Inovalon.

With issues outside of its control affecting the counterparty, Inovalon offered no assurances that any deal would be reached at a later date.

Now what

Inovalon CEO Keith Dunleavy tried to find a silver lining:

"While this is certainly not the situation we expected or desired, it does demonstrate the level of market opportunity for our platform capabilities, the significance of value that can be driven by those capabilities, and the size and scale at which Inovalon is being called upon to partner and deliver them."

While the company made clear that the guidance cut was strictly due to the transaction falling through, the stock carved out a new 52-week low on the news. Shares of Inovalon are down about 70% from their peak in early 2015. With revenue now expected to decline this year, investors are no doubt questioning the growth story.

10 stocks we like better than Inovalon Holdings
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Inovalon Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of Nov. 7, 2016

Timothy Green has no position in any stocks 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.