Over the past six months, Molina Healthcare’s shares (currently trading at $145.75) have posted a disappointing 16.6% loss, well below the S&P 500’s 6.5% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Following the pullback, is now an opportune time to buy MOH? Find out in our full research report, it’s free.

Why Does MOH Stock Spark Debate?

Founded in 1980 as a provider for underserved communities in Southern California, Molina Healthcare (NYSE: MOH) provides managed healthcare services primarily to low-income individuals through Medicaid, Medicare, and Marketplace insurance programs across 21 states.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Molina Healthcare’s sales grew at an impressive 18.7% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers.

2. Economies of Scale Give It Negotiating Leverage with Suppliers

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $45.43 billion in revenue over the past 12 months, Molina Healthcare boasts impressive economies of scale. It may not be as large as heavyweights such as UnitedHealth Group and The Cigna Group from a topline perspective, but its heft is still an important advantage in a healthcare industry that is heavily regulated, complex, and resource-intensive.

One Reason to be Careful:

Customer Base Hits a Plateau

Revenue growth can be broken down into the number of customers and the average spend per customer. Both are important because an increasing customer base leads to more upselling opportunities while the revenue per customer shows how successful a company was in executing its upselling strategy.

Over the last two years, Molina Healthcare’s total customers were flat, coming in at 5.49 million in the latest quarter. This performance was underwhelming and shows the company faced challenges in landing new contracts. It also suggests there may be increasing competition or market saturation.

Final Judgment

Molina Healthcare has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 21.8× forward P/E (or $145.75 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

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