Shareholders of Centene would probably like to forget the past six months even happened. The stock dropped 46.2% and now trades at $31.92. This might have investors contemplating their next move.
Following the drawdown, is now the time to buy CNC? Find out in our full research report, it’s free.
Why Does CNC Stock Spark Debate?
Serving nearly 1 in 15 Americans through its government healthcare programs, Centene (NYSE: CNC) is a healthcare company that manages government-sponsored health insurance programs like Medicaid and Medicare for low-income and complex-needs populations.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Centene’s sales grew at a solid 14.2% compounded annual growth rate over the last five years. Its growth surpassed 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 $178.2 billion in revenue over the past 12 months, Centene is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.
One Reason to be Careful:
Weak Customer Growth Points to Soft Demand
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.
Centene’s total customers came in at 28 million in the latest quarter, and over the last two years, their count averaged 1.2% year-on-year growth. This performance was underwhelming and suggests that increasing competition is causing challenges in landing new contracts. 
Final Judgment
Centene’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 8.4× forward P/E (or $31.92 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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