Why Shares of Inovalon Are Soaring Today

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What happened

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Shares of cloud-based healthcare platform provider Inovalon (NASDAQ: INOV) jumped on Tuesday after the company announced that UnitedHealthcare, a business of UnitedHealth Group (NYSE: UNH), had signed a five-year deal to use its ONE platform. Inovalon stock was up 20% at noon, while shares of UnitedHealth were down about 0.7%.

So what

UnitedHealthcare has entered a five-year engagement with Inovalon to implement the ONE platform. This deal is an expansion of the relationship between the two companies. Inovalon CEO Keith Dunleavy said this about the deal: "As the trend toward quality and value-based care models increases, the sophistication of the technologies needed to achieve meaningful and differentiated results has never been more critical to success. We are very pleased to be expanding our partnership with UnitedHealthcare, a clear industry leader, helping to support their data-driven approach to care quality."

No financial details were announced, so it's unclear if the 20% jump in Inovalon's stock price is an overreaction. Inovalon's revenue has been slumping in recent quarters, down 2% in 2016 and down 10.7% year over year during the second quarter of this year. The company's guidance calls for second-half revenue to rise about 17% year over year, an outlook that likely includes the UnitedHealthcare win.

Now what

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Shares of Inovalon have tumbled since the company went public in 2015. A steady decline gave way to a series of steep drops in 2016, driven by disappointing revenue. Even after Tuesday's surge, Inovalon stock is down about 45% from its all-time high.

The UnitedHealthcare deal will contribute to Inovalon's return to growth during the second half. After two years of disappointment for investors, Inovalon has finally delivered some good news.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.