Health insurance marketplace operator and Medicare-focused digital health company GoHealth, Inc. (GOCO) made its stock market debut in July last year, marking one of the largest healthcare IPOs. On August 2, GoodRx Holdings, Inc. (GDRX) and GOCO announced an exclusive agreement to bring GOCO’s Medicare enrollment and engagement solutions directly to GDRX’s users on its platform. Also, its proprietary Encompass platform, launched last August, has been helping GOCO improve its offerings.
However, the stock has lost 58.6% over the past year and 40.9% over the past month to close yesterday’s trading session at $5.36. After reporting unimpressive second-quarter financials, it also hit its all-time low of $4 on August 13, 2021. While health insurance companies such as GOCO could witness increased activities during the open enrollment period for 2022 Medicare coverage, their costs are also expected to increase. Moreover, GOCO has seen a decrease in hedge fund sentiment lately. So, its near-term prospects look bleak.
Here are the factors that could shape GOCO’s performance in the upcoming months:
GOCO’s net revenues increased 55% year-over-year to $196.90 million for the second quarter ended June 30, 2021, primarily driven by an 84% year-over-year gain in its Medicare—Internal segment with Lifetime Value Commissions per Approved Submission (LTVs) expanding 5%. However, while its cost of revenue increased 2.4% year-over-year to $37.44 million, its total operating expenses increased 52.6% year-over-year to $215.85 million. Its net loss came in at $39.18 million, up 71.3% year-over-year. Also, its adjusted EBITDA decreased 46.8% year-over-year to $14.34 million.
Tight labor market conditions are putting pressure on wages, increasing the cost incurred by companies. According to Stats NZ, the labor cost index (LCI) increased 2.1% in June 2021. For GOCO, enhanced training and tight labor markets are expected to create cost pressure. As a result, it reduced its adjusted EBITDA outlook for 2021. It is now expected to come between $300 million and $330 million, compared to $345- $385 million prior guidance.
In terms of trailing-12-month EBITDA margin, GOCO’s 2.56% is 89.4% lower than the industry average of 24.09%. Likewise, the stock’s trailing-12-month levered FCF margin of 18.91% is lower than the industry average of 20.09%. Moreover, its trailing-12-month ROCE, ROTC, and ROTA are negative compared to the industry averages of 12.59%, 6.53%, and 1.28%, respectively.
POWR Ratings Reflect Bleak Prospects
GOCO has an overall rating of D which equates to a Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Out of these categories, GOCO has a D grade for Quality, consistent with its lower-than-industry profitability ratios.
The stock has a D grade for Momentum, in sync with its 40.9% loss over the past month and 53.2% loss over the past three months. Moreover, GOCO has an F grade for Sentiment, consistent with unfavorable analyst sentiment.
GOCO is a popular health insurance company that combines cutting-edge technology, data science, and machine-learning algorithms to provide the best healthcare policy for specific needs. However, the stock is currently trading lower than its 50-day and 200-day moving averages of $6.65 and $10.36, respectively, indicating a downtrend. Moreover, its EPS is expected to remain negative in the current quarter (ending September 31, 2021). So, it could be wise to avoid the stock now.
How Does GoHealth (GOCO) Stack Up Against its Peers?
While GOCO has an overall POWR Rating of D, you might want to consider looking at its industry peer, Marsh & McLennan Companies, Inc. (MMC), which has a B (Buy) rating.
GOCO shares were trading at $5.78 per share on Friday afternoon, up $0.42 (+7.84%). Year-to-date, GOCO has declined -57.69%, versus a 20.61% rise in the benchmark S&P 500 index during the same period.