SelectQuote (SLQT) stock fell a whopping 45 percent on Aug. 26 after markets gave a thumbs down to the company's earnings release. What’s the forecast for SLQT stock, and will it go back up?
SelectQuote is an insurance policy comparison website that went public in 2020, pricing its IPO at $20 and selling 18 million shares. The IPO valued the company at $3.25 billion. In 2021, the stock has whipsawed, touching an all-time high of $33 in April before tumbling to an all-time low of $7.72 on Aug. 26.
On Aug. 26, SelectQuote released its fiscal 2021 fourth-quarter earnings. While its revenue increased 33 percent year-over-year, its net income fell year-over-year to $3.3 million from $16.7 million.
Policy lapses and pressure on persistency took a toll on its earnings and impacted its projected IRR (internal rate of return). In fiscal 2022, the company expects revenue growth of 33–49 percent and adjusted EBITDA growth of 12-25 percent.
SLQT has given a placeholder guidance of $65 million to protect from the risk of cohort tail adjustment in fiscal 2022's fourth quarter. The company’s guidance being below estimates in its earnings report was another contributor to the sell-off and analyst downgrades.
SLQT stock's forecast
According to CNN Business, analysts' median target price for SLQT is $27.50, which is a 248 percent higher than its current price. Of the six analysts covering the stock, four rate it “buy” and two rate it “hold.”
Several analysts also revised their ratings after the earnigs report. RBC analyst Frank Morgan downgraded SLQT from "outperform" to "sector perform" and lowered his target price to $13. That said, even the lower target implies an upside of almost 65 percent over the next 12 months.
KBW also lowered its target price, from $33 to $13.50, and downgraded the stock from "outperform" to "market perform." Piper Sandler lowered its target price from $39 to $20.
Will SelectQuote stock recover?
The sell-off in SelectQuote stock looks overdone. The company trades at less than 1 times its projected fiscal year 2022 sales, and its sales growth outlook for fiscal 2022 looks strong despite being lower than what analysts were expecting. The stock should recover.
Should you buy SLQT stock?
SelectQuote revised its IRR projections for some of its cohorts. It said that its 2017 cohort is performing better than expected, while its 2018 cohort is in line with previous forecasts. The company lowered its projected IRR for its 2019 cohort from 45 to 39 percent.
For the 2020 cohort, the company is facing persistency pressure but it has managed to offset it—it had modeled lower persistency in its original IRR projections. SLQT CFO Raffaele Sadun sounded upbeat, saying, "Despite some persistency pressure compared to original expectations, we expect cohort-level IRRs to remain very attractive."
To sum up, SLQT stock looks like a good buy now after its crash. While it may be volatile in the short term, it should recover in the medium to long term.