HealthEquity HQY has faced a challenging start to 2025, with the stock plunging more than 13.1% year to date compared with the industry’s 1.5% and S&P 500 Index’s 9.2% decline, respectively. This downturn comes on the heels of the company's fiscal fourth-quarter earnings call, wherein management informed about the escalating cyber threats and fraud-related expenses, along with increased operational costs. Additionally, the ongoing global tariff war has put added pressure on the company, potentially impacting its cost structure and growth prospects in key international markets.

Despite these headwinds, HealthEquity remains a major player in the Health Savings Accounts (HSAs) space. With strong fundamentals still in place, let us delve deeper and figure out the best course of action for your portfolio regarding HQY stock.

HQY's YTD Performance

Image Source: Zacks Investment Research

Reasons Favoring HQY’s Growth

Expansion of Health Savings Accounts: HealthEquity has experienced significant growth in its HSA offerings. As of Jan. 31, 2025, the company reported 9.9 million HSAs, marking a 14% increase year over year. Additionally, total HSA assets reached $32.1 billion, a 27% rise from the previous year. The number of HSAs with investments grew 23%, contributing to a 44% increase in invested assets to $14.7 billion. The company also achieved a milestone by opening 471,000 new HSAs in the fiscal fourth quarter alone, bringing the total to 1 million new HSAs for the fiscal year.

Unique Investment Platform: HealthEquity offers multiple cloud-based platforms accessed by its members online via a desktop or mobile device. Individuals can make health saving and spending decisions and pay healthcare bills, among other activities, via these platforms. These platforms provide users access to services HealthEquity provides, as well as services provided by third parties selected by HealthEquity or by its Network Partners. Among other features, HealthEquity’s HSA platform can provide users with medical bills upon adjudication by a health plan, including details such as the amount paid by insurance.

Decent Q4 Results: ???In the fourth quarter of fiscal 2025, HQY reported a 19% year-over-year increase in revenues, reaching $311.8 million, driven by growth across service, custodial, and interchange revenue streams. The company’s bottom line also improved 9.5% on a year-over-year basis. Solid growth in HSAs also drove the top line. The solid uptick in total HSA assets in the reported quarter is promising. Looking ahead, HealthEquity projects fiscal 2026 revenues between $1.28 billion and $1.305 billion and earnings per share (EPS) between $3.57 and $3.74, indicating continued growth despite near-term challenges.

HQY Shares Look Overvalued

HealthEquity’s stock is not so cheap, as suggested by the Value Score of D.

HQY currently trades at a Price-to-Sales (P/S) ratio of 5.44X, which is substantially higher than the industry’s P/S of 0.4X. This significant premium suggests that the market values HQY at a much richer multiple compared to its industry peers, likely reflecting stronger growth expectations, a differentiated business model, or higher profitability potential. However, investors should assess whether future revenue performance justifies the premium, especially given the stark contrast with sector benchmarks.

Price-to-Sales Forward Twelve Months (F12M) Ratio

Image Source: Zacks Investment Research

Factors That May Offset HQY’s Gains

HealthEquity operates in a competitive and fragmented Medical Services market. Its success heavily relies on increasing consumer adoption of HSAs and other CDBs and effectively engaging clients, Network Partners, and members. If stakeholders fail to see the value of its services or engagement lags, market growth may slow, negatively impacting results.

Additionally, HealthEquity handles highly sensitive personal data, making robust cybersecurity essential to its operations. Security breaches could lead to data or fund loss, legal action, reputational damage, and loss of customer trust. In the fourth quarter of fiscal 2025, the company faced rising cyber threats, including account takeovers and impersonation, leading to increased spending on fraud prevention and support. Investments in enhanced security measures, such as multi-factor authentication and advanced detection systems, contributed to a $17 million decline in gross profit for the quarter.

HQY’s Estimate Trend

HealthEquity is witnessing a negative estimate revision trend for 2026. In the past 60 days, the Zacks Consensus Estimate for its earnings has moved 9 cents south to $3.63 per share.

The Zacks Consensus Estimate for the company’s first-quarter 2026 revenues is pegged at $321.1 million, indicating an 11.7% increase from the year-ago quarter’s reported number.

Image Source: Zacks Investment Research

Is HealthEquity Stock a Hold for Now?

HQY remains well-positioned for long-term growth, supported by its expanding HSA base and a differentiated digital platform that enhances user engagement and healthcare decision-making. The company’s solid quarterly performance, along with its fiscal 2026 guidance, reflects operational strength across service, custodial, and interchange revenue streams.

While HQY faces challenges such as rising cybersecurity threats, increased fraud-related expenses, and a competitive market landscape, its ongoing investments in advanced security measures and customer experience demonstrate a proactive approach to risk management. However, the stock's premium valuation and recent downward earnings revisions suggest a cautious near-term outlook.

HQY holds a Value Score of ‘D’ and a Growth Score of ‘B,’ reflecting solid fundamentals but a rich valuation. Its Momentum Score of ‘C’ indicates limited short-term upside. Currently carrying a Zacks Rank #3 (Hold), HQY stock is best viewed as a Hold, as investors wait for improved earnings visibility and margin recovery before considering further exposure.

Stocks to Consider

Some better-ranked stocks from the broader medical space are AngioDynamics ANGO, Veeva Systems VEEV and Masimo MASI.

AngioDynamics, currently sporting a Zacks Rank #1 (Strong Buy), reported third-quarter fiscal 2025 adjusted EPS of 3 cents against the Zacks Consensus Estimate of a loss of 13 cents. Revenues of $72 million beat the Zacks Consensus Estimate by 2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

ANGO has an estimated fiscal 2026 earnings growth rate of 27.8% compared with the S&P 500 Composite’s 10.5% growth. The company surpassed earnings estimates in each of the trailing four quarters, with the average surprise being 70.9%.

Veeva Systems, sporting a Zacks Rank #1 at present, posted fourth-quarter fiscal 2025 adjusted EPS of $1.75, exceeding the Zacks Consensus Estimate by 10.1%. Revenues of $720.9 million surpassed the Zacks Consensus Estimate by 3.2%.

VEEV has an estimated long-term earnings growth rate of 26.6% compared with the industry’s 20.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.9%.

Masimo, currently sporting a Zacks Rank #1, reported a fourth-quarter 2024 adjusted EPS of $1.80, which surpassed the Zacks Consensus Estimate by 20.8%. Revenues of $600.7 million topped the Zacks Consensus Estimate by 0.8%.

MASI has an estimated earnings yield of 3.5% for fiscal 2025 compared with the industry’s 3.6% yield. The company’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 14.4%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AngioDynamics, Inc. (ANGO) : Free Stock Analysis Report

Masimo Corporation (MASI) : Free Stock Analysis Report

Veeva Systems Inc. (VEEV) : Free Stock Analysis Report

HealthEquity, Inc. (HQY) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research