Is Benefitfocus Expensive At $11?

After a 30% rally since March 23rd, we believe Benefitfocus’ stock (NASDAQ: BNFT)  seems to still have room to grow based on its valuation. Benefitfocus’ stock has rallied from $8 to $11 off the recent bottom compared to the S&P which moved 40%. One of the reasons for the high recovery was the Fed’s multi-billion dollar stimulus package announced on March 23rd which lifted market sentiments. The rise at the end of April was helped by the launch of benefitplace.com, a new website that offers a variety of affordable individual and family health plans for employees who are seeking lower-cost alternatives and other products and services to support the well-being of displaced workers. The rally in June was partly due to the announcement that the company had closed the deal of an $80 million investment from BuildGroup LLC.

Benefitfocus’ stock has partially reached the level it was at before the drop in February and March due to the coronavirus outbreak becoming a pandemic. In reality, demand and revenues will likely be lower than last year, despite which we believe the stock could see a potential upside post the coronavirus crisis.

The company lost 59% of its share price since the end of 2017, and some of this drop over the last 2 years was offset by a 25% rise in Benefitfocus’ revenues from $236.8 million in 2017 to $295.7 million in 2019. The net income margin also improved from -21% in 2017 to -14% in 2019.

The company has seen a steady revenue rise over recent years, but its P/S multiple has been fluctuating. We believe the stock has possible upside after the recent rally as and when the potential uncertainty due to the Covid outbreak becomes clear. Our dashboard ‘What Factors Drove -58% Change In Benefitfocus Stock Between 2017 And Now?‘ has the underlying numbers.

Benefitfocus’ P/S multiple declined from 4x in 2017 to 2x in 2019. While the company’s P/S is now 1x, there is a possible upside when the current P/S is compared to levels seen in recent years. P/S of 2x at the end of 2019 and 6x as late as 2018.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Due to the stay-at-home orders there is reduced discretionary spending which has adversely affected consumption as consumers focus on essentials. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe Benefitfocus’ Q2 results will confirm the hit to its revenue.

However, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which helped set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value.

While Benefitfocus’ stock has a possible upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

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