Today, investors in SelectQuote(NYSE:SLQT) are seeing dramatic declines. Indeed, at the time of writing, SLQT stock has dropped more than 40% on very heavy volume. Currently, more than 23 million shares have traded hands, versus the typical 1.3 million shares on a daily basis.
This move comes following an earnings report today that appears to have missed the mark with investors and analysts. The company reported what appeared to be solid numbers. Revenue growth came in at 76% year-over-year to $406 million. And the company reported a compound annual growth rate (CAGR) of 67% over the past two years.
However, investors appear to be looking forward, rather than backward. After all, every stock is valued on the basis of the discounted stream of future cash flows. Some commentary made from SelectQuote’s management team during the earnings call invited criticism of where this company may go from here on this front.
Among the harshest critics of SelectQuote have been analysts. Today,two analyst downgrades drove this drop. Let’s dive into what the analysts see with this stock that has some investors worried.
SLQT Stock Down on Analyst Downgrades
As a pioneer of the direct-to-consumer insurance price-comparison business, SelectQuote has been operating for a long time. This company was founded in 1985, only to seek out equity markets last year during the pandemic.
Today’s sharp decline brings SLQT stock to its lowest point since being publicly listed. This decline appears to factor in some rather bearish commentary from analysts who don’t see strength in SelectQuote’s ability to grow at these rates moving forward.
Meyer Shields of Keefe, Bruyette & Woods suggests that lower persistency in combination with rather weak guidance given by SelectQuote is worth a substantial downgrade. This analyst formerly had SLQT stock pegged at a price target of $30. Shields slashed this target to $13.50 and downgraded the stock to “Market Perform” from “Outperform.”
Additionally, Frank Morgan of RBC Capital Markets cut his price target down to $13 from $33. Similarly, he brought his rating down to the equivalent of “Hold” from a “Buy.”
These analysts seem to think that policyholder churn is likely to inhibit SelectQuote’s future cash-flow projections. As it is currently not generating positive free cash flow, these analysts have projected that the company will not generate positive FCF until further down the road. Today, investors appear to be on the same page and have bid this stock down well below the $13 to $13.50 level, approximately where this stock was trading at yesterday.