Health Equity – Roaring Through $100

Introduction:

I’ve written several articles highlighting HealthEquity (HQY) since the sub $40 range as a great play on the secular growth in the Health Savings Account (HSA) space that’s largely independent of legislative actions, the drug pricing debate or rising insurance costs. HealthEquity is not an insurance company thus does not possess any liability for coverage in any capacity nor does the company play any role in the pharmaceutical supply chain. HealthEquity is at the center of a healthcare paradigm shift where consumers are taking control of their healthcare dollars via leveraging HSAs. HealthEquity manages funds allocated for medical, dental and vison expenses that are deducted on a pre-tax basis and deposited into a dedicated HSA account. The company blew out the numbers when it reported its Q2 FY19 results with the stock following suit breaking out above $95 per share to an all-time high of $98 and looking to break through $100.

HealthEquity manages $7.0 billion in assets across 3.6 million accounts against a potential market maturity of $1 trillion in assets across 50-60 million accounts. The durability of this growth has a long runway due to the secular growth in the HSA market.  The company is sitting on largely untapped revenue sources where the vast majority of account holders have yet to invest any HSA money in investment offerings. Expanding margins for greater profitability is also unfolding as the older the account, the greater the gross margins observed. HealthEquity is currently sitting on a healthy balance sheet with ~$303 million in cash and cash equivalents with zero debt. The company is posting accelerating revenue, cash flow, margin expansion and income growth with a strong balance sheet. I feel that HealthEquity will continue to post strong growth as it services the double-digit HSA growth market and manages more assets, accounts and investments within these accounts. HealthEquity may be a great long term investment in the healthcare space that’s independent from the health insurances, pharmaceutical supply chain companies, drug makers or pharmacies. The current valuation is rich in an already frothy market thus caution at these levels is wise.

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Disclosure: The author no longer holds shares of HealthEquity. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or ...

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