Monday, January 24, 2011

eHealth Inc (NASDAQ: EHTH) Q1 2011 Analysis

Recent price: 12.13$
P/E Ratio: 21.56
3 month Target Price: 14.50$

Company Description
eHealth, Inc. is the parent company of eHealthInsurance Services Inc., the leading online source of health insurance for individuals, families and small businesses. Their ecommerce platform enables individuals, families and small businesses to research, analyze, compare and purchase health insurance products that best meet their needs. Their technology also enables them to communicate electronically with their insurance carrier partners and process consumers’ health insurance applications online. As a result, they simplify and streamline the complex and traditionally paper-intensive health insurance sales and purchasing process.

eHealth generates revenue primarily from commissions they receive from health insurance carriers whose policies are purchased through them by individuals, families and small businesses. They typically receive commission payments on a monthly basis for as long as a policy remains active. As a result, much of their revenue for a given financial reporting period relates to policies that were sold prior to the beginning of the period and is recurring in nature.

Confidence Margins
Strong resistance $16.00 (+32%)
Light resistance $14.83 (+22%)
Light support $11.70 (-4%)
Strong support $9.33 (-23%)

There is no apparent reason for the recent slump of stock price of eHealth. An interesting fact is that there has been a significant increase in the volume of shares transacted per day. Except for that irregular fact, the company should be valued higher.

Entry strategy
For the cautious investor:
Buy the stock for 13$ or less.

For the risk-taking trader:
The February 2011 12.50$ in-the-money call option contract seems to be the right position to take, they can be acquired for about 60$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 14.50$, or keep it until 15$ if you are more bullish. It is highly recommended to keep the position on check if it goes sour.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 13.50$. This should provide a satisfactory return if the underlying reaches the target price.

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