Health Insurance Innovations Inc: Down 63%, But the Shorts Are Wrong

iStock.com/anyaberkut

Health Insurance Innovations Inc: Cheap Valuation Makes it a “Warren Buffett Stock”

There is nothing like searching the stock market trash bin and fishing for cheap stocks that may be mispriced by the market.

My recent search yielded an extremely cheap small-cap health insurance play that even Warren Buffett would like. It’s cheap and undervalued.

Health Insurance Innovations Inc (NASDAQ:HIIQ) is a medical insurance plan provider that caters to people in the United States who are without a plan.

The company targets both citizens and non-citizens with affordable insurance coverage. An interesting new target is the growing Spanish-speaking community.

Advertisement

Consider that Health Insurance Innovations stock is down a whopping 63% from its 52-week high of $63.13 on October 1, 2018. The extreme selling in this stock opens an aggressive opportunity for risk capital.

On the chart, HIIQ stock staged a strong rally of 47% after the low in August, but it remains ridiculously cheap, trading at 5.15 times its 2020 earnings per share (EPS).

Chart courtesy of StockCharts.com

From its current price, Health Insurance Innovations stock could target $40.00 and return a near double.

Why Fundamentals Support a Much Higher HIIQ Stock Price

Shares of Health Insurance Innovations Inc have been battered to the point where even a horrible outcome in terms of the company’s fundamentals doesn’t support the sell-off.

The company’s revenue picture indicates strong sequential double-digit growth in the last four years, including record growth in 2018. The compound annual growth rate (CAGR) during this time frame was 49.7%.

Fiscal Year Revenues (Millions) Growth
2015 $104.7
2016 $184.5 76.2%
2017 $250.5 35.8%
2018 $351.1 40.2%

(Source: “Health Insurance Innovations,Yahoo! Finance, last accessed September 27, 2019.)

While Health Insurance Innovations’ revenue growth rate is estimated to moderate, the numbers still look great. The company is expected to grow its revenues by 28% to $449.5 million this year and by 15.8% to $520.3 million in 2020.

The company is also profitable on both a generally accepted accounting principles (GAAP) and adjusted basis, with higher EPS estimates over the past 90 days.

HIIQ is expected to report EPS of $4.09 this year, up from $2.60 per diluted share in 2018. This is estimated to be followed by $4.61 per diluted share in 2020.

Health Insurance Innovations Inc generated positive free cash flow (FCF) in three of the last four years, but saw a decline in 2018. The higher revenues and earnings expectations should help drive FCF higher over the next two years.

Fiscal Year FCF (Millions)
2015 -$13.2
2016 $14.9
2017 $38.4
2018 $19.6

(Source: Ibid.)

Analyst Take

By traditional value standards, Health Insurance Innovations stock is extremely cheap. Its price/earnings to growth (PEG) ratio of 0.56 suggests a heavy discount to the expected five-year CAGR for earnings, and offers some downside protection.

Despite the apparent attractiveness of HIIQ stock, short sellers are betting against Health Insurance Innovations Inc. As of August 14, a whopping 7.4 million shares were shorted, representing 52.4% of the outstanding shares. (Source: Ibid.)

If I’m right and the shorts are wrong, this stock could be on the verge of a major short-covering surge.