Why Phreesia Stock Got Knocked Down Today
Key Points
This added to lingering negative sentiment following the company's latest earnings release.
Investors didn't like the fact that it whiffed on earnings.
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Hardly for the first time in recent trading sessions, Phreesia (NYSE: PHR) stock took it on the chin Tuesday. Investors remained bearish on the stock following the healthcare provider software specialist's second-quarter earnings release last week. This was exacerbated by an analyst's recommendation downgrade early Tuesday morning.
Buffeted by these headwinds, the company's stock closed that trading session almost 7% lower.
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It's now a hold, says pundit
The downgrading party was financial services company Raymond James, in the person of pundit John Ransom. He moved his Phreesia rating down one peg to market perform (hold, in other words) from his previous outperform (buy).
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The catalyst for this, unsurprisingly, was that quarterly performance. According to reports, Ransom expressed concern that the company's organic revenue growth continues to decline, potentially turning negative in the second half of this year.
The analyst also wrote in his update that Phreesia's spending on the build-out of its artificial intelligence (AI) capabilities could pressure the growth of earnings before interest, taxes, depreciation, and amortization (EBITDA). On top of that, the company's target market of healthcare providers and networks might see constrained budgets going forward.
A wait-and-see situation
Although Phreesia posted a quarter where it missed on the bottom line, its performance wasn't bad by any stretch of the imagination -- revenue grew by 10% year over year, while profitability nearly tripled. That said, it has several new products that will probably need time to win over customers, and it's in the midst of restructuring its operations.
It has potential as an investment, to be sure, but it's probably best to wait a bit to see if the restructuring improves its business and those newer offerings capture the hearts of customers.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
