EHealth (NASDAQ:EHTH) news for Wednesday concerning a negative stance on the online health insurance exchange has EHTH stock taking a beating.
The bad eHealth comes from Muddy Waters Research. The firm’s founder, Carson Block, is shorting the stock. To be clear, that means that he doesn’t see it as a profitable business and expects the stock to drop.
So what exactly is behind the pessimistic take for EHTH stock? Block says that the company is using certain accounting practices that cover up the fact that the business doesn’t make a profit. That includes how it records possible future revenue.
According to Block, this is an effort by the company to pump up EHTH stock while the company also promotes strong growth. While the Muddy Waters Research founder says that eHealth isn’t doing anything legally fraudulent, it is doing so intellectually, reports CNBC.
Here’s a portion of the Muddy Water Research statement concerning the EHTH stock news.
“EHTH’s highly aggressive accounting masks what we believe is a significantly unprofitable business. Based on variable costs alone, we estimate that EHTH will lose approximately -$135 from each MA member it enrolled in 2019. If also including fixed costs, our per MA member loss estimate becomes -$402.
We adjust 2019 revenue down by $128 million or 25%. We adjust 2019 operating profit down by $263 million due to subjective and misapplied mark-to-model accounting, yielding an operating loss of -$181 million.”
EHTH stock was down 11.72% when markets closed Wednesday.