Accolade Moves Higher But Growth Is Slowing

Published on

Accolade (NASDAQ:ACCD) is certainly an interesting play on the health care space providing business and employee services geared toward helping clients navigate the cumbersome health benefits arena. The pandemic helped boost the company’s business and has on track to continue growing but there is a fly in the ointment. Not only is the revenue growth slowing but it is expected to slow further in the coming quarter and for the full year and, worse, profitability remains elusive. The company CEO is optimistic profitability will be reached by their 2025 target but we think that’s a long way off and there are some serious economic hurdles in the outlook.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 2022 hedge fund letters, conferences and more

Accolade Beats And Gives Mixed Guidance

Accolade certainly had a good quarter at face value but there are some issues hanging over the market that could weigh on share prices moving forward. The company reported $85.5 million in net revenue for a gain of 44% versus last year which beat the consensus by 430 basis points but the growth is slowing. Gains were made on the back of both new clients and increased penetration but were not enough to offset the company’s expenses which include an increase in tech spending, advertising, and stock-based compensation.

Moving down to the margin the news is mixed with GAAP earnings of -$4.92 missing the consensus estimate by $4.18. The mitigating factor is a non-cash impairment charge is to blame, the takeaway is that even when adjusting for that the company still posted a GAAP loss. The GAAP loss narrowed on a YOY basis but we see increased tech spending and advertising costs impacting shares for the foreseeable future.

Turning to the guidance the outlook is positive but tepid in relation to the analyst's estimates. The company is looking for Q2 revenue in the range of $82 to $83.5 million with full-year revenue in the range of $355 to $365 million. This guidance is only bracketing the consensus, however, and implies a sharp slowdown to only 17% YOY in the current fiscal year. That compares to nearly 82% in the prior year and we don’t see the figure picking up significantly in the following year. The analysts are expecting growth to slow in fiscal 2024 to the 13% range.

The Analyst Outlook For Accolade Is Imploding

The 14 analysts rating Accolade have it pegged at a Buy but that is not saying much given the trend in sentiment. The Buy is a very weak Buy and the consensus rating has been slipping while the consensus price target has absolutely imploded. The only shout-out post-release that we’ve so far come from Goldman Sachs which lowered its target to only $13. This is still about 75% above the current price action but compounded by a recently set low price target of $6 (below the current action) and the consensus target is trending sharply lower. The consensus is down 68% from last year, 55% over the past quarter, and 17.65% in the last 30 days and we think it will fall further. The takeaway here is that we won’t be eager to buy into this name until the trend in sentiment changes.

The Technical Outlook: Accolade Moves Up But Is Trending Lower

The price action in Accolade moved up in the wake of the Q1 release but that move has since moderated. The stock is hovering around the flat-line in premarket action and we are not expecting a big move up. If anything, the stock will trade flat and sideways from this level with a chance of retesting the recent lows and even setting a new low.


Article by Thomas Hughes, MarketBeat