Oscar Health Stock: Undervalued Amid Rising Healthcare Costs

Health insurers face rising costs, eroding profits, with Centene withdrawing guidance and other major players experiencing significant stock drops. Oscar Health's stock, trading around $17, is considered a good buy due to its attractive valuation compared to its recent operating performance and financial health. The company's price-to-sales, free cash flow, and earnings ratios are lower than the S&P 500. Oscar Health's revenues have grown at an average rate of 59% over the last three years and 54% in the last 12 months.

Title: Rising Costs Erode Profits, Oscar Health Stock Seen as Attractive Buy

Health insurers are grappling with escalating costs, which have eroded profits and sent stock prices tumbling. On July 2nd, Centene (NYSE:CNC) withdrew its financial guidance, citing rising costs, and other major players like Oscar Health (NYSE:OSCR), UnitedHealth (NYSE:UNH), Molina (MOH), and CVS (CVS) experienced significant stock drops. Oscar Health's stock, currently trading around $17, is considered a good buy due to its attractive valuation compared to its recent operating performance and financial health.

Barclays initiated coverage on Oscar Health with an Underweight rating and a $17.00 price target, citing policy risks that could threaten the company's margin and growth targets [1]. Despite these challenges, Oscar Health shares have risen more than 50% in June, driven by speculative retail investor interest, creating asymmetric downside risk [1]. The company's strong revenue growth of 54% in the last twelve months is a positive indicator, but the high P/E ratio of 35.8 suggests it may be overvalued [1].

Oscar Health's recent financial performance has been impressive. The company reported first-quarter 2025 earnings of $0.92 per share, surpassing Wall Street expectations, and achieved $3.05 billion in revenue, a 42% year-over-year increase [3]. The company's net income improved by $98 million, reaching $275 million, while earnings from operations rose by $112 million to $297 million. Membership also saw significant growth, ending the quarter with 2 million members, a 41% increase year-over-year [3].

Piper Sandler revised its outlook on Oscar Health, lowering the price target from $25 to $18 but maintaining an Overweight rating, citing potential policy changes affecting the Affordable Care Act marketplace [1]. Despite these challenges, Oscar Health's valuation metrics are attractive. The company's price-to-sales (P/S) ratio of 0.5 is lower than the S&P 500's 3.1, and its price-to-free cash flow (P/FCF) ratio of 4.3 is also lower than the S&P 500's 20.9 [2]. Additionally, Oscar Health's price-to-earnings (P/E) ratio of 41.7 is lower than the S&P 500's 26.9 [2].

Oscar Health's revenues have grown considerably over recent years. The company's revenues have grown at an average rate of 59% over the last three years and 54% in the last 12 months [2]. While the company's profit margins are modest compared to the broader market, this is typical for the health insurance industry, which operates on thin margins and high volume [2].

In summary, Oscar Health's stock presents an attractive buying opportunity at its current levels of $17, given its strong revenue growth and attractive valuation metrics. However, investors should carefully weigh the potential risks, including policy changes and the stock's volatility, before deciding to invest. For those seeking lower volatility, the Trefis High Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception [2].

References
[1] https://www.investing.com/news/analyst-ratings/barclays-initiates-oscar-health-stock-with-underweight-rating-on-policy-risks-93CH-4120603
[2] https://www.nasdaq.com/articles/health-insurers-face-headwinds-costs-rise
[3] https://finance.yahoo.com/news/oscar-health-nyse-oscr-q1-172945229.html