After short sellers suggested the company is overvalued because of investigations into its marketing practices, questions regarding its licensure, and insider selling, Health Insurance Innovations (NASDAQ: HIIQ) shares lost 21.9% of their value today.
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Health Insurance Innovations sells short-term health insurance and hospital indemnity plans online and via third-party distributors.
The company's sales and share price have been increasing. However, short-sellers took aim at the company today in a report that cites a 42 state investigations into its sales practices, a rejection of its application for licensure in Florida, and poor marks on consumer-reporting websites, including the Better Business Bureau. The report also highlights $50 million in insider stock sales as the company's shares have been rallying.
At the time of this writing, management is hosting a conference call that is (ostensibly) addressing the issues raised by short-sellers, so investors will want to tune in and hear what Health Insurance Innovations says about these matters. In the meantime, here's what management had to say about the investigation in its most recent 10-Q filing with the SEC:
Second-quarter revenue of $61.8 million was 39% higher year over year, and adjusted EPS of $0.46 was up 70% from one year ago. Health Insurance Innovations reported 359,000 policies in force in June, and as a result, it upped its full year sales growth forecast to a range of between 22% to 25% from prior guidance for between 15% to 20%. If it hits that target, then it expects to report adjusted EPS of $1.45 to $1.55, up 29% to 38% from last year.
The numbers, however, might not take into consideration any costs associated with settling any ongoing investigations or any risk associated with failing to receive a license in Florida. There's also a risk that healthcare reform -- or lack thereof -- in Washington has negative unintended consequences for the short-term health-insurance market.
The company's growth makes this stock intriguing, but until management adequately addresses the questions short-sellers are raising, I expect Health Insurance Innovations' stock will be too volatile for most investors to consider owning it. Instead, it's probably best to add it to a watch list and focus on other stocks, at least until the dust settles.
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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.