Key Takeaways
- Oscar Health has achieved a significant operational turnaround, reporting its first-ever profitable quarter in Q1 2024 with $177.4 million in net income, challenging its historical perception as a cash-burning growth company.
- The company’s Medical Loss Ratio (MLR) has improved dramatically to 74.2%, a key indicator of underwriting discipline and cost control that now rivals established peers.
- Despite strong top-line growth and a pivot to profitability, Oscar’s valuation, particularly its price-to-sales ratio, remains at a notable discount compared to the broader managed care sector.
- Management has raised its full-year 2024 guidance, signalling confidence in sustaining this newfound profitability through the remainder of the year.
- Key risks remain centred on regulatory uncertainty surrounding ACA marketplace subsidies beyond 2025 and the company’s high concentration within this market segment.
The narrative surrounding Oscar Health appears to be undergoing a fundamental shift, moving from a story of high-growth, technology-driven disruption to one of tangible operational execution and, crucially, profitability. The company’s recent performance indicates a successful transition from burning cash to generating it, a pivot that the market may not have fully priced in. While revenue growth remains robust, the underlying improvements in cost control and underwriting discipline are now the central pillar of the investment thesis, suggesting a significant gap may exist between its legacy perception and its current financial reality.
The Profitability Inflection Point
For years, the primary question for Oscar was whether its technology-first approach could translate into a viable insurance business model. The first quarter of 2024 provided the most compelling affirmative answer to date. The company reported its first profitable quarter, a milestone that cannot be overstated. This was not a marginal gain but a significant swing from prior periods, driven by disciplined underwriting and operational leverage.
The most critical metric in this turnaround is the Medical Loss Ratio (MLR), which measures the percentage of premium revenue spent on medical claims. A lower MLR signifies greater efficiency and underwriting profitability. Oscar’s Q1 2024 results showed a remarkable improvement in this area.
| Metric | Q1 2024 | Q1 2023 | Year-over-Year Change |
|---|---|---|---|
| Premiums Earned | $2.1 billion | $1.4 billion | +50% |
| Medical Loss Ratio (MLR) | 74.2% | 84.0% | -980 bps |
| Net Income (Loss) | $177.4 million | ($39.7 million) | +$217.1 million |
| Adjusted EBITDA | $218.6 million | ($20.2 million) | +$238.8 million |
Source: Oscar Health Q1 2024 Earnings Release.1
This dramatic improvement in MLR brings Oscar into a competitive range with established managed care organisations, refuting the argument that its member base was inherently less profitable or that its risk models were ineffective. Following these results, management raised its full-year 2024 guidance, projecting an MLR between 80.5% and 82.5% and Adjusted EBITDA of $225 million to $275 million, reinforcing confidence that this performance is sustainable.1
Valuation Disconnect and Peer Context
Despite the operational turnaround, Oscar’s valuation metrics suggest a lingering scepticism from the market. When compared to peers, the company trades at a discount, particularly on a price-to-sales basis. This may reflect its history of losses and its concentration in the politically sensitive Affordable Care Act (ACA) marketplace.
However, if the company’s newfound profitability proves durable, this valuation gap presents a clear opportunity. A forward look at estimated sales shows a company growing faster than peers but valued at a lower multiple.
| Company | Market Cap (approx.) | Forward P/S (2024 Est.) | 2024 Revenue Growth (Est.) |
|---|---|---|---|
| Oscar Health (OSCR) | $4.5 billion | ~0.5x | ~38% |
| Centene (CNC) | $37 billion | ~0.25x | ~1% |
| Molina Healthcare (MOH) | $21 billion | ~0.55x | ~18% |
| Clover Health (CLOV) | $0.5 billion | ~0.2x | -35% |
Source: Data compiled from Yahoo Finance and company guidance as of mid-2024.2,3
While mature players like Centene command lower multiples due to their slower growth, Oscar’s combination of high growth and a valuation in line with or below faster-growing peers like Molina suggests mispricing. The high level of insider ownership, last reported to be significant, provides some alignment with shareholder interests, suggesting that management’s confidence is backed by its own capital.4
Forward-Looking Risks and A Concluding Hypothesis
The path forward is not without considerable risk. Oscar’s heavy reliance on the individual and small group markets, particularly the ACA exchanges, makes it vulnerable to regulatory shifts. The enhanced subsidies provided by the Inflation Reduction Act are set to expire at the end of 2025, and any failure to extend them could materially impact enrollment and affordability across the entire sector. This policy overhang likely contributes to the valuation discount.
Furthermore, competition remains fierce, with larger, more diversified, and better-capitalised insurers capable of weathering market cycles more easily. Oscar must continue to prove that its operational improvements are structural, not cyclical.
A speculative hypothesis is this: the market is still valuing Oscar as a speculative insurtech when it has begun to operate like a disciplined managed care entity. If Oscar can deliver a second and third consecutive quarter of profitability and meet or exceed its raised 2024 guidance, a significant re-rating event could occur. Such a re-rating would not be based on a speculative future but on the demonstrated reality of its new business model, potentially closing the valuation gap with its peers and rewarding those who recognised the pivot from promise to profit.
References
- Oscar Health. (2024, May 7). Oscar Health Reports First Quarter 2024 Results, Demonstrating Strong Momentum and Profitability. Retrieved from https://ir.hioscar.com/news-events-presentations/news-press-releases/news-details/2024/Oscar-Health-Reports-First-Quarter-2024-Results-Demonstrating-Strong-Momentum-and-Profitability/default.aspx
- Yahoo Finance. (2024). Oscar Health, Inc. (OSCR) Summary. Retrieved from https://finance.yahoo.com/quote/OSCR/
- Yahoo Finance. (2024). Peer company financial data for CNC, MOH, CLOV. Retrieved from https://finance.yahoo.com
- MarketBeat. (2024, July 10). Concurrent Investment Advisors LLC Makes New $677,000 Investment in Oscar Health, Inc.. Retrieved from https://www.marketbeat.com/instant-alerts/filing-concurrent-investment-advisors-llc-makes-new-677000-investment-in-oscar-health-inc-nyseoscr-2024-07-10/
