Ontrak Down 97.5% Over Year, Up 54% Premarket – Why?

Ontrak (NASDAQ: OTRK) stock is down 97.5% over the past year. It's also up 54% premarket this morning and has been another 20% higher than that too. Clearly we'd like to know what's going on here. One obvious and possible thought is simply that it's a dead cat bounce – drop anything from high enough and it will bounce at least once – but there's something more here too.

It's also possible that this is just some fat finger or odd trade mistake which can so plague the very thin markets overnight in small stocks. Our test there is to go look at the trading records on NASDAQ and while we'd not say that trades are large they are in fact real trades giving us this Ontrak stock price. So, it's not a fat finger, it's not the dead cat, what is it?

The answer is that Ontrak releases Q2 2022 results after the market close this afternoon. So, there's some speculation in what those results will be in the market. Given that no one other than those who prepared them – unless there's been some appalling insider information leak – know what those results are the entire OTRK stock price movement is being driven by pure speculation. It's possible for us to join it if we wish but we do have to know what it is that we're joining.

Also Read: Five Best Pharmaceutical Stocks to Watch in 2022

We do know what expectations are for Ontrak. The consensus revenue estimate is $4.65 million – that's 82.5% down year on year. That rather neatly explains that 97% fall in the Ontrak stock price over this past year. The EPS estimate is minus $0.53, as opposed to minus $0.12 last year.

This is all rather a surprise as well for the market that Ontrak is in should be doing well. They're in telemedicine, more specifically the online aiding of those with chronic conditions. Given the ageing population this is ever more of us of course. Further, there are a number of such chronic conditions that benefit from behaviour change. As we all know behaviour change is difficult, so using online mechanisms to support patients in those condition improving changes could have considerable merit to it.

Health care and big the – even big data? Why shouldn't this be exciting. Further, the successful alleviation of chronic conditions can lead to up to 50% savings in health care costs. So, the profit motivated US health care system should be very interested in this idea.

The restraint has been that there are considerable costs in building a big data system. Overheads, capital or development costs, call them what we will. The marginal costs of another patient by contrast are rather small. So, the business game becomes a dash for growth to get revenues above development costs. Once that's achieved further growth is nearly pure net margin. The problem Ontrak had is that it tried this dash for growth and it didn't really come off. So, they had to cut back on those plans that that's the reason for the revenue collapse. The big question in the results tonight will really be where management sees revenue going looking forward.