Over the past six months, Molina Healthcare has been a great trade, beating the S&P 500 by 10.8%. Its stock price has climbed to $200, representing a healthy 23.2% increase. This run-up might have investors contemplating their next move.
Is now still a good time to buy MOH? Or is this a case of a company fueled by heightened investor enthusiasm? 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. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Molina Healthcare grew its sales at a solid 16.2% compounded annual growth rate. 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 $45.08 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:
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.
Molina Healthcare’s total customers came in at 5.03 million in the latest quarter, and over the last two years, their count averaged 1.9% 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
Molina Healthcare’s positive characteristics outweigh the negatives, and with its shares outperforming the market lately, the stock trades at 34.9× forward P/E (or $200 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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