Over the past six months, eHealth’s shares (currently trading at $5.33) have posted a disappointing 12.5% loss, well below the S&P 500’s 24.4% gain. This might have investors contemplating their next move.
Is now the time to buy eHealth, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.
Why Is eHealth Not Exciting?
Even with the cheaper entry price, we don't have much confidence in eHealth. Here are three reasons there are better opportunities than EHTH and a stock we'd rather own.
1. Declining Estimated Membership Reflect Product Weakness
As an online marketplace, eHealth generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
eHealth struggled with new customer acquisition over the last two years as its estimated membership have declined by 2.2% annually to 1.15 million in the latest quarter. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If eHealth wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect eHealth’s revenue to drop by 2.5%, a decrease from This projection is underwhelming and implies its products and services will see some demand headwinds.
3. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
eHealth’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 6.8%. This means it lit $6.76 of cash on fire for every $100 in revenue. This is a stark contrast from its EBITDA margin, and its investments (i.e., stocking inventory, building new facilities) are the primary culprit.
Final Judgment
eHealth isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 4× forward EV/EBITDA (or $5.33 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
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