Muddy Waters vs. eHealth: The Debate of a “Lifetime”

Case Solution

Jonas Heese, Cristo Liautaud
Harvard Business School ()

In May 2020, an analyst evaluated the performance of eHealth. eHealth was an online broker / telesales of health insurance products. The stock recently hit an all-time high, closing on March 4, 2020 at a high of $ 146. But now, on May 4, 2020, eHealth was trading at $ 103. The recent slide had reduced the company’s market capitalization. in nearly a billion dollars after prominent short seller Carson Block published a short report on the company. Carson Block argued that the eHealth administration had undertaken a “massive promotion of shares.” In the report, Block said that eHealth’s introduction of the new ASC 606 revenue recognition standard inflated revenue and obscured the fact that eHealth is losing money with every new policy it sells. However, the eHealth valuation remained increased by 3.3x fiscal year 2021E sales, 21 times the adjusted net profit of fiscal year 2021E, even if accounting uncertainty is removed. Also, the consensus stock average target price as of May 4, 2020 was $ 179. Does the latest news offer a buying opportunity? Or was it better to avoid eHealth and maybe even consider downsizing the business?

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