Why LifeMD Stock Is Plunging Today

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What happened

Shares of telehealth services provider LifeMD (NASDAQ:LFMD) are falling sharply on Monday and were down by 12.7% as of 1:49 p.m. EDT, after dropping by as much as 18.8% earlier in the day. These losses are a bit surprising: The company released better-than-expected preliminary first-quarter results this morning, so one might expect that its stock would be moving in the opposite direction. Perhaps we can attribute LifeMD’s woes on the market today to a shareholder class action lawsuit against the company filed by Pennsylvania-based law firm Kaskela Law. 

So what

Understanding the basis for Kaskela Law’s class action lawsuit requires a bit of background information. On April 14, investigative research firm Culper Research made serious accusations against LifeMD in a short-seller report. Specifically, Culper Research alleged that LifeMD and its executives are engaged in fraudulent and criminal business activities.

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Following the release of this report, shares of LifeMD dropped by almost 25% in one day. On April 17, Kaskela Law announced the filing of a class action lawsuit against LifeMD on behalf of “investors who have suffered an investment loss in excess of $100,000” following Culper Research’s short-seller report. In an open letter posted on the company’s website, LifeMD responded to — and denied — the allegations brought forth by Culper Research.

Now what

Despite the drama linked to Culper Research’s short-seller report, LifeMD’s business seems to be doing well. For the first quarter, the company expects revenue of $18.2 million, which is above the consensus analyst estimate of $17.01 million. This revenue figure would also represent year-over-year top-line growth of 323%. The healthcare company attributes this performance to strong retention and new patient acquisition.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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