Humana has gotten torched over the last six months - since November 2024, its stock price has dropped 24.3% to a new 52-week low of $224.50 per share. This may have investors wondering how to approach the situation.
Following the pullback, is now an opportune time to buy HUM? Find out in our full research report, it’s free.
Why Does Humana Spark Debate?
With over 80% of its revenue derived from federal government contracts, Humana (NYSE: HUM) provides health insurance plans and healthcare services to approximately 17 million members, with a strong focus on Medicare Advantage plans for seniors.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Humana’s sales grew at a solid 12.2% 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 $120.2 billion in revenue over the past 12 months, Humana 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:
Declining Customer Base Reflects Product and Sales Weakness
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.
Humana’s total customers came in at 14.84 million in the latest quarter, and over the last two years, their count averaged 3.4% year-on-year declines. This performance was underwhelming and shows the company lost deals and renewals. It also suggests there may be increasing competition or market saturation. 
Final Judgment
Humana has huge potential even though it has some open questions. With the recent decline, the stock trades at 15.1× forward P/E (or $224.50 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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