HEALTHEQUITY, INC. (HQY): what the price requires
At today's price, HEALTHEQUITY, INC. (HQY) is priced for +14.4% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/HQY
Headline
| Field | Value |
|---|---|
| Ticker | HQY |
| Company | HEALTHEQUITY, INC. |
| Current price | $95.08/sh |
| Composition | Service revenue 37% / Custodial revenue 48% / Interchange revenue 15% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 6.4% |
| Operating margin today | 26.6% |
| Margin compression implied | -20.2pp |
| Implied growth | 14.4% |
| Multiple paid | 24x operating income |
The operating-margin requirement is derived from the framework's value band at year 7, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 8.2% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.7pp.
Reconcile: at the x-ray's 9.3% required return this reads ~22.6%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.46σ |
| cohort percentile (of 210 peers) | 66 |
| sustained it ~5 years at this level | 45% |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.95x | 5 | expensive |
| Earnings | 2.18x | 5 | expensive |
| Relative | 1.31x | 5 | expensive |
| Growth | 0.76x | 3 | justifies |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.3%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $163.98 | 0.58x | yes | FCF base $0.5B, growth 8% (input: historical growth), terminal g 4.0%, WACC 8.3%, 6yr projection |
| DCF Exit Multiple | Growth | $124.51 | 0.76x | yes | Exit EV/EBITDA: 15.7x / 17.7x / 19.7x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $72.44 | 1.31x | yes | P/E 24.51x (blended: static sector reference 20x + trailing (TTM) 35x), scenarios: 20.5x / 24.5x / 28.5x (bear / base = reference held flat / bull), EV/EBITDA 14x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $29.34 | 3.24x | yes | BV/sh $24.09, ROE (TTM) 11.3%, ke 9.3% |
| Two-Stage Excess Return | Asset | $32.25 | 2.95x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $87.31 | 1.09x | yes | Rev $1.3B, growth 8% (input: historical growth; tapered), Terminal P/S: 5.1x / 6.0x / 7.0x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $32.04 | 2.97x | yes | EPS $2.67, growth 2% (input: historical EPS growth), PEG=17.52 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $6.75 | 14.09x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.14B × (1−25%) / WACC 8.3% → EPV (no growth) |
| Residual Income | Asset | $32.82 | 2.90x | yes | BV $24.09 + 5yr PV of (ROE (TTM) 11.3% − Kₑ 9.3%) × BV; BV grows 7.3%/yr |
| Graham Number | Asset | $38.04 | 2.50x | yes | √(22.5 × EPS $2.67 × BVPS $24.09) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $73.30 | 1.30x | yes | EBITDA $0.50B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | $53.55 | 1.78x | yes | FCF $487.6M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $43.62 | 2.18x | yes | SBC-adj FCF $0.41B (FCF $0.49B − SBC $0.08B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $86.15 | 1.10x | yes | EPS $2.67 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $8.06 | 11.80x | yes | BV $24.09 × (ROIC 2.8% / WACC 8.3%) |
| P/Sales Sector | Relative | $23.60 | 4.03x | yes | Revenue $1.34B × sector P/S 1.5x |
| PEG Fair Value | Relative | $100.13 | 0.95x | yes | EPS $2.67 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $28.86 | 3.29x | yes | EPS $2.67 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $677.3m |
| Net debt / NOPAT (after-tax) | 2.54x |
| Net debt / operating income (pre-tax) | 1.91x |
| Interest coverage | 6.3x |
| Share count CAGR (dilution) | 0.3% |
| Burning cash | no |
Bullet Takeaways
- HealthEquity is the largest custodian of health savings accounts, administering 10.6 million HSAs and $37.1 billion of HSA assets, and the balances compound on their own as members contribute and invest, which is why adjusted EBITDA margin runs near 46% on a roughly fixed cost base.
- The biggest single risk is interest rates: the largest, highest-margin line is custodial revenue, the spread earned on members' cash guided near 3.75% for the year, so a sustained drop in rates would compress the most profitable revenue directly, with about $640 million of net debt and 5.6 times coverage layered on top.
- What to watch is competition and security: UnitedHealth agreed to acquire Alegeus, a rival serving over 75,000 employers, with the deal expected to close in the second half of 2026, and HealthEquity is still working through litigation from a 2024 data breach that affected about 4.3 million individuals.
Bull Case
The structural advantage HealthEquity holds is one of the cleanest in financial services, and it shows up directly in the margin. It is the largest custodian of health savings accounts, and an HSA is among the stickiest deposits a person owns: the money is triple-tax-advantaged, tied to an employer's benefits plan, and meant to be held for decades, so once an account opens it tends to stay and grow rather than churn. The company administers 10.6 million HSAs and $37.1 billion of HSA assets, the latter up 19% year over year, split between $17.5 billion of cash and $19.6 billion invested. The economics of that base are unusual and self-reinforcing. The 10-K describes the mechanism plainly: because members' balances grow over time, "our custodial revenue and recordkeeping and advisory service revenues are increased without equivalent incremental cost to us." Revenue compounds on a roughly fixed cost base, which is why the company runs an adjusted EBITDA margin in the mid-40s, near 46% in the most recent quarter.
The three revenue streams reinforce one another rather than competing. The company earns service fees on accounts, interchange on member spending, and custodial revenue on the cash members hold, the last of which the filing explains is "based on the interest rates offered to us by these Depository Partners and insurance" companies. Custodial revenue is the largest line at $174.3 million in the quarter, service the most stable at $122.9 million, and interchange the smallest at $57.4 million. Each new account feeds all three: a fee when it opens, interchange when the member spends, and a growing custodial spread as the balance compounds. That is a flywheel a single-product custodian does not have.
The return profile is what the moat produces. The account base grew 8%, ahead of the roughly 6% the broader HSA industry grew, so HealthEquity is taking share in a market that is itself expanding. Net income rose 29% to $69.4 million, or $0.82 per diluted share, and management raised its full-year outlook on the print. A business that grows its own revenue per account every year, on costs that barely move, and that is gaining share in a growing market, is exactly the kind of compounder the static valuation frames cannot price on a single year's earnings. The bull case is that the moat is real, measurable in the margin, and still widening.
Bear Case
The fragility worth opening on is structural, and it sits in the shape of the revenue rather than on the balance sheet alone. HealthEquity's single largest and highest-margin line is custodial revenue, the spread it earns on members' cash, and the company's own 10-K is explicit that this revenue is "based on the interest rates offered to us by these Depository Partners and insurance" companies, on balances that "have a floating interest rate and no set term or duration." That is a revenue stream the company does not control the price of. It rents the spread from depository partners, and the spread floats with rates. Management guides the yield on HSA cash near 3.75% for the year and hedges with Treasury forwards to smooth the path, but a sustained drift lower in rates flows straight to the highest-margin line with no offsetting cost to cut. The largest piece of the profit is the piece most exposed to a variable management cannot set, and the price is not behaving as if that is a live risk.
The corporate balance sheet adds a second, smaller layer of leverage on top of that operating exposure. The company carries roughly $1 billion of debt against a net debt position near $640 million, about two times trailing operating income, with interest coverage near 5.6 times. That is manageable in a steady-rate world, but it is real fixed cost layered on a profit stream whose biggest input floats. If the custodial yield compresses while the debt service stays put, the operating leverage that works so beautifully on the way up works in reverse, and the mid-40s margin is not a law of nature; it is a function of a spread that can narrow.
The competitive map is the third pressure, and it is firmer than the moat narrative admits. UnitedHealth agreed to acquire Alegeus, a competitor in consumer-directed benefits that serves more than 75,000 employers and over 10 million members, putting a far larger and better-capitalized player behind a rival platform, with the deal expected to close in the second half of 2026. Separately, HealthEquity is still working through the consequences of a 2024 cybersecurity incident that exposed information on roughly 4.3 million individuals. None of this is fatal, but it bears directly on the durability the price pays for. At about $88 only the growth-discounted family of methods reaches the price, while asset-based and earnings-power lenses read it as richly valued, several sharply, because they capitalize a trailing profit stream that cannot see the future compounding. The price needs roughly six more years of the growth the company has been posting to settle the math. That is a long time to hold a rate-dependent spread, a layer of corporate debt, and a newly emboldened competitor without one of them mattering.
Valuation
What the price near $88 is paying for is duration: the assumption that HealthEquity keeps compounding its account base and its custodial spread for years before the growth fades to a normal rate. Inverted, the price requires roughly six more years of the kind of growth the company has been posting before the math settles. That is a durability bet, and it is the right way to read a business whose revenue compounds on a near-fixed cost base. The company already earns a high operating margin on its trailing revenue, so the price is not asking for margin expansion so much as for the compounding to persist, which is a question about the rate environment and the competitive map as much as about execution.
The methods make the dependence explicit, and the pattern is the signal. Only the growth-discounted family reaches the price. The asset-based and earnings-power methods read it as richly valued, several of them sharply, because they capitalize a trailing profit stream that cannot capture an account base growing its own revenue every year. Peer multiples sit modestly above the price. When a single family carries the entire valuation and every static method falls short, the price is a moat-and-durability premium the conventional frames structurally cannot express, not a level today's earnings support on their own.
Solvency is a corporate frame here, not a financial's, so leverage and coverage are the right lenses. Net debt sits near $640 million, about two times trailing operating income, with interest coverage near 5.6 times, a balance sheet that is sound but not unlevered. The thing to hold in mind is that the leverage sits on top of a profit stream whose largest line, the custodial spread, floats with rates the company does not set. A buyer at this price is underwriting a long runway of compounding, a custodial yield that stays supportive, and a competitive position that holds as a larger rival moves in, with a layer of debt that needs the spread to cooperate. The compounding has been real; the price asks for a lot more of it.
Catalysts
The most recent quarter, ended April 30, 2026, was a record-and-raise. HealthEquity reported revenue of about $354.6 million, up 7% year over year, split into $122.9 million of service revenue, $174.3 million of custodial revenue, and $57.4 million of interchange revenue. Net income rose 29% to $69.4 million, or $0.82 per diluted share, from $0.61 a year earlier, and adjusted EBITDA grew 17% to about $164.5 million at a 46% margin. The account base grew to 10.6 million HSAs and $37.1 billion of HSA assets, up 19%, with $17.5 billion in cash and $19.6 billion invested, and account growth of 8% outpaced the roughly 6% the broader industry grew.
On the print, management raised its full-year outlook for the fiscal year ending January 31, 2027, guiding revenue to about $1.41 billion to $1.42 billion and adjusted EBITDA to roughly $625 million to $633 million, with a yield on HSA cash near 3.75%. The board also expanded the share-repurchase authorization by $1 billion, a signal management sees the stock as a reasonable use of capital and a partial offset to dilution. Analyst sentiment stayed constructive, with BMO Capital upgrading to outperform at a $105 target and Deutsche Bank raising its target to $128, leaving a consensus comfortably above the current price.
The competitive and security threads are the cautionary catalysts. UnitedHealth agreed to acquire Alegeus, a competitor in consumer-directed benefits serving more than 75,000 employers and over 10 million members, with the deal expected to close in the second half of 2026, putting a much larger player behind a rival platform. Separately, HealthEquity continues to work through the consequences of a 2024 cybersecurity incident that exposed information on roughly 4.3 million individuals. The forward catalysts to watch are the path of the custodial yield as rates move, the pace of account and asset growth against the Alegeus-backed competition, and how aggressively management leans on the expanded buyback.
Peer Cohorts (Per Segment, With Filing Citations)
HealthEquity (consolidated) (reported)
- WEX (WEX Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
HealthEquity Q1 FY2027 earnings release, May 2026 · HealthEquity FY2026 financials · UnitedHealth Alegeus deal coverage, 2026 · HealthEquity Q1 FY2027 disclosures, May 2026 · Benzinga analyst ratings, 2026