Is Oscar Health (OSCR) The High Growth Low Debt Stock to Invest in Now?

In the ever-evolving landscape of healthcare technology, one company has emerged as a beacon of growth and financial stability: Oscar Health, Inc. (OSCR). With a recent surge in revenue and a historic achievement of profitability, OSCR is poised to be the high-growth, low-debt stock that investors have been searching for. But is the hype justified, or is there more to the story? Let's dive in and find out.

The Numbers Don't Lie

Oscar Health's financial performance for 2024 is nothing short of impressive. The company reported a total revenue of $9.2 billion, a staggering 56.5% increase year-over-year. This growth is driven by a combination of membership expansion during the 2024 Open Enrollment period, strong retention rates, and significant additions during the Special Enrollment Period (SEP). The company's total membership as of December 31, 2024, stood at 1,676,970, a substantial increase from 1,036,283 in 2023.

But revenue growth is just one piece of the puzzle. Oscar Health also reported a net income attributable to Oscar of $25.4 million for 2024, marking the first time the company has achieved profitability. This is a significant milestone, especially considering the company's Adjusted EBITDA of $199.2 million, an improvement of $244.5 million year-over-year. These metrics indicate that Oscar Health is not only growing but also managing its costs effectively.

A Strong Financial Foundation

One of the key factors that sets Oscar Health apart is its strong financial foundation. The company's debt-to-equity ratio of 1.42 is relatively low compared to the industry average of 1.25, indicating that Oscar Health is not overly reliant on debt financing. This financial stability allows the company to invest more in growth opportunities, such as research and development, marketing, or capital expenditures, without the constraints of significant debt obligations.

Membership Growth and Retention

Oscar Health's membership growth and retention are driven by several key factors. The company's Medical Loss Ratio (MLR) for 2024 was 81.7%, a 10 basis points increase year-over-year. This ratio is influenced by SEP membership growth and an increase in risk adjustment transfers, partially offset by favorable prior period development. The overall utilization for the year was modestly favorable compared to pricing expectations, suggesting that the company's risk management strategies are effective.

Additionally, the SG&A Expense Ratio for 2024 improved by 520 basis points year-over-year to 19.1%. This improvement is driven by improved fixed cost leverage and variable cost efficiencies. The reduction in operational expenses allows the company to invest more in growth initiatives, such as technology and member services, which can further enhance member satisfaction and retention.

The Broader Healthcare Market Dynamics

In the context of broader healthcare market dynamics, these trends appear sustainable. The healthcare technology sector is experiencing disruption, with companies like Oscar Health leveraging AI-driven technology stacks to lower costs and enhance user experience. This competitive advantage allows Oscar Health to gain significant market share, a trend expected to accelerate. Additionally, the company's strong operational expertise, as demonstrated by the appointment of healthcare veteran Janet Liang as President, Oscar Health Insurance, further strengthens its position in the market.

The Outlook for 2025

Looking ahead, Oscar Health's outlook for 2025 is equally promising. The company anticipates Total Revenue of $11.2 billion to $11.3 billion, a Medical Loss Ratio of 80.7% to 81.7%, a SG&A Expense Ratio of 17.6% to 18.1%, and Earnings from Operations of $225 million to $275 million. These projections suggest that Oscar Health is well-positioned to continue its growth trajectory.

The Bullish Thesis

The bullish thesis on Oscar Health is compelling. The company's AI-driven technology stack, strong operational expertise, and financial stability make it a standout in the healthcare technology sector. With a proprietary AI-driven technology stack that lowers costs and enhances user experience, Oscar is gaining significant market share, a trend that is expected to accelerate. As the market fully appreciates Oscar’s AI-powered competitive advantage, a sharp re-rating is likely, mirroring the trajectory of Tempus AI (TEM). A 12x multiple on a 2027 base-case EPS of $2.50 yields a $30 price target, offering significant upside potential.

The Bearish Case

However, it's not all sunshine and rainbows. The healthcare sector is notoriously volatile, and regulatory changes can have a significant impact on companies like Oscar Health. Additionally, the company's reliance on government subsidies and the potential for changes in healthcare policy pose risks that investors should be aware of.

Conclusion

In conclusion, Oscar Health's financial performance, particularly its revenue growth and profitability metrics, compares favorably to other high-growth, low-debt stocks in the healthcare sector. The company's significant revenue growth, achievement of profitability, and strong financial position suggest that it is well-positioned to continue delivering sustained profitable growth in the future. However, investors should be aware of the risks and potential challenges that lie ahead. As always, do your own research and make informed decisions. Happy investing!