Key Takeaways
- A notable divergence is emerging in portfolio activity, with capital rotating out of high-flying momentum names and into businesses perceived to be at a cyclical or operational turning point.
- Oscar Health’s recent achievement of profitability marks a critical inflection, shifting its narrative from a speculative technology disruptor to a viable insurance entity with significant operating leverage.
- Conversely, stocks like Vistra and Axon, both beneficiaries of powerful secular trends (AI energy demand, public safety technology), are facing scrutiny over valuations after significant price appreciation.
- The appetite for Alibaba and dLocal signals a willingness to underwrite specific risks—geopolitical and execution-related, respectively—in exchange for exposure to deep value and high-growth emerging markets.
A curious bifurcation is becoming evident in recent market flows, suggesting a strategic repositioning among investors. On one side, capital appears to be moving into companies defined by idiosyncratic catalysts—operational turnarounds, deep value situations, or niche emerging market exposure. On the other, there is a clear pattern of profit-taking in names that have enjoyed powerful, theme-driven runs, raising questions about whether their valuations have now outpaced their near-term fundamentals. This dynamic offers a compelling look into the current risk-reward calculus, pitting turnaround potential against the challenge of managing highly successful, but perhaps fully priced, investments.
The Search for Idiosyncratic Turning Points
The cohort of stocks attracting fresh capital is thematically diverse, yet united by a common thread: each presents a specific, company-level thesis that is somewhat insulated from broader market narratives. This group includes a newly profitable insurer, an emerging markets payment specialist, and a beleaguered Chinese technology giant.
Oscar Health: The Profitability Inflection
Perhaps the most compelling story among this group is that of Oscar Health (OSCR). For years, Oscar was emblematic of technology-driven disruption in the health insurance sector, characterised by rapid membership growth but persistent unprofitability. That narrative has now fundamentally changed. The company reported its first-ever profitable quarter in Q1 2024, with a net income of $177 million, and subsequently raised its full-year guidance, now forecasting an adjusted EBITDA of between $500 million and $550 million.1 This is not a minor development; it is the critical inflection point that validates its model. The key driver has been a sharp improvement in its Medical Loss Ratio (MLR), which measures how much of every premium dollar is spent on medical claims. A lower MLR signifies greater underwriting discipline and efficiency. For investors, the thesis is no longer about subsidising growth but about the operating leverage inherent in a newly profitable insurance platform.
dLocal: A High-Growth, High-Risk Premium
dLocal (DLO) offers exposure to a different kind of opportunity: the structural growth of digital payments in emerging markets. The company provides a single API that allows global merchants to accept payments in 39 countries across Africa, Asia, and Latin America. Its appeal is rooted in its impressive top-line growth, with total payment volume rising 55% year-on-year in its most recent quarter.2 However, this growth does not come without considerable risk. The company operates in volatile macroeconomic and political environments, and it has previously faced scrutiny from short-sellers regarding its take rates and foreign exchange practices. The investment case for dLocal is therefore a wager that its unique market position and sustained growth are sufficient compensation for the elevated risk premium associated with its operational footprint.
Alibaba: Deep Value and the Long Road to Recovery
Alibaba (BABA) represents a classic deep value, contrarian play. The Chinese e-commerce and cloud computing firm trades at a significant discount to its global peers, with a forward price-to-earnings ratio in the single digits. This valuation reflects a potent combination of headwinds: intense domestic competition from rivals like PDD Holdings, weak Chinese consumer sentiment, and persistent geopolitical tensions. In response, management has initiated a broad restructuring and a renewed focus on shareholder returns through substantial share buybacks and dividends.3 An investment in Alibaba is less a bet on a return to its hyper-growth past and more a position that the market has overly punished the stock, creating a compelling valuation floor for a patient investor willing to underwrite the considerable regulatory and macroeconomic risks.
Managing Momentum and Valuation Headwinds
The other side of the ledger reveals a more cautious stance, with investors trimming exposure to companies that have performed exceptionally well. This activity appears driven not by a deterioration in fundamentals, but by disciplined risk management in the face of stretched valuations.
Vistra: From Traditional Utility to AI Power Broker
Vistra Corp (VST) has undergone a remarkable re-rating, transforming from a conventional independent power producer into a key beneficiary of the artificial intelligence boom. The insatiable energy demand from data centres has created a powerful tailwind for electricity generators, particularly those with reliable, carbon-free baseload power. With its recent acquisition of Energy Harbor, Vistra has become the second-largest nuclear operator in the United States, positioning it perfectly to meet this demand. This narrative has propelled its stock to extraordinary gains. The selling pressure suggests that some investors, while acknowledging the powerful secular trend, believe the current valuation now largely reflects this upside and are choosing to realise profits after a significant run.4
Axon Enterprise: When Platform Growth Meets Valuation Gravity
Axon Enterprise (AXON) presents a similar case of a stellar performer facing valuation scrutiny. The company has successfully transitioned from a hardware provider (Tasers) into a dominant public safety technology platform, with its high-margin cloud software and sensor business (Evidence.com) driving recurring revenue growth. This SaaS-like model commands a significant valuation premium. The company continues to deliver robust growth, with annual recurring revenue up 26% year-on-year in its latest report.5 However, with a forward P/E ratio that remains elevated, the debate is shifting from the quality of the business to the price one should pay for it. The decision to reduce exposure may reflect a view that while the long-term story is intact, the current share price leaves little room for any execution missteps.
Comparative Financial Snapshot
| Company | Ticker | Sector | Key Metric (Latest Quarter Y/Y) | Forward P/E Ratio | Thesis |
|---|---|---|---|---|---|
| Oscar Health | OSCR | Health Insurance | Premiums Earned: +46% | ~30.1 | Profitability Inflection |
| dLocal | DLO | Financial Technology | Total Payment Volume: +55% | ~16.5 | Emerging Market Growth |
| Alibaba | BABA | E-commerce & Cloud | Revenue: +7% | ~8.9 | Deep Value / Restructuring |
| Vistra Corp | VST | Utilities | Ongoing Adj. EBITDA: +54% | ~20.5 | AI Energy Demand |
| Axon Enterprise | AXON | Aerospace & Defence | Annual Recurring Revenue: +26% | ~61.2 | SaaS Platform Growth |
Data as of late 2024. Forward P/E ratios are estimates and subject to change.
Conclusion and a Forward-Looking Hypothesis
The current investment landscape appears increasingly focused on a trade-off between proven momentum and prospective recovery. The rotation out of high-flyers like Vistra and Axon is a logical exercise in risk management, while the inflows into Oscar, dLocal, and Alibaba represent calculated risks on distinct, non-correlated outcomes. It is a market that rewards not just identifying a winning theme, but also knowing when that theme has been fully embraced by the consensus.
A speculative hypothesis: while the AI energy narrative is powerful, the market may be underestimating the operational leverage inherent in Oscar Health’s business model now that it has crossed the profitability threshold. Should the company demonstrate consistent profitability and MLR discipline over the next several quarters, its valuation could re-rate from that of a speculative health-tech firm to that of a stable, growing insurer. This transition could unlock significant upside that is not yet fully reflected in its share price, potentially offering a more compelling risk-adjusted return than chasing already appreciated secular growth stories.
References
- Oscar Health. (2024, May 7). Oscar Health Reports First Quarter 2024 Results, Achieves First-Ever Profitable Quarter. Business Wire. Retrieved from https://www.businesswire.com/news/home/20240507568582/en/Oscar-Health-Reports-First-Quarter-2024-Results-Achieves-First-Ever-Profitable-Quarter
- dLocal. (2024, May 14). dLocal reports 2024 first quarter financial results. GlobeNewswire. Retrieved from https://www.globenewswire.com/en/news-release/2024/05/14/2881691/0/en/dLocal-reports-2024-first-quarter-financial-results.html
- Alibaba Group. (2024, May 14). Alibaba Group Announces March Quarter and Full Fiscal Year 2024 Results. Retrieved from https://www.alibabagroup.com/en/news/press_pdf_1715688220.pdf
- Vistra Corp. (2024, May 8). Vistra Reports Strong First Quarter 2024 Results. PR Newswire. Retrieved from https://www.prnewswire.com/news-releases/vistra-reports-strong-first-quarter-2024-results-302139196.html
- Axon Enterprise. (2024, May 6). Axon Reports First Quarter 2024 Revenue Up 34% to $461 Million. Retrieved from https://investor.axon.com/press-releases/press-release-details/2024/Axon-Reports-First-Quarter-2024-Revenue-Up-34-to-461-Million/default.aspx
