Alignment Healthcare (ALHC)

Health insurance company Alignment Healthcare (NASDAQ:ALHC) announced better-than-expected revenue in Q3 CY2025, with sales up 43.5% year on year to $993.7 million. Guidance for next quarter’s revenue was optimistic at $1.00 billion at the midpoint, 2.4% above analysts’ estimates. Its GAAP profit of $0.02 per share was significantly above analysts’ consensus estimates.

Company Overview

Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ:ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.

Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.

Alignment Healthcare competes with larger Medicare Advantage providers like UnitedHealth Group's UnitedHealthcare (NYSE:UNH), Humana (NYSE:HUM), and CVS Health's Aetna (NYSE:CVS), as well as with regional players like Clover Health (NASDAQ:CLOV) and Bright Health Group (NYSE:BHG).

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 $3.64 billion in revenue over the past 12 months, Alignment Healthcare has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Alignment Healthcare’s sales grew at an incredible 32% compounded annual growth rate over the last five years. Its growth surpassed the average healthcare company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Alignment Healthcare’s annualized revenue growth of 45.4% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

Alignment Healthcare also reports its number of customers, which reached 229,600 in the latest quarter. Over the last two years, Alignment Healthcare’s customer base averaged 41.2% year-on-year growth. Because this number is lower than its revenue growth, we can see the average customer spent more money each year on the company’s products and services.

This quarter, Alignment Healthcare reported magnificent year-on-year revenue growth of 43.5%, and its $993.7 million of revenue beat Wall Street’s estimates by 1.2%. Company management is currently guiding for a 43% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 29.1% over the next 12 months, a deceleration versus the last two years. Still, this projection is healthy and indicates the market is forecasting success for its products and services.

Although Alignment Healthcare broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 5.2% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, Alignment Healthcare’s operating margin rose by 14.7 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 8.1 percentage points on a two-year basis. These data points are very encouraging and show momentum is on its side.

In Q3, Alignment Healthcare’s breakeven margin was up 3.6 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Alignment Healthcare’s earnings losses deepened over the last five years as its EPS dropped 14.8% annually. However, it’s bucked its trend as of late, increasing its EPS over the last three years. We’ll see if it can maintain its growth.

In Q3, Alignment Healthcare reported EPS of $0.02, up from negative $0.14 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Alignment Healthcare’s full-year EPS of negative $0.12 will reach break even.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

While Alignment Healthcare posted positive free cash flow this quarter, the broader story hasn’t been so clean. Alignment Healthcare’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 1.1%. This means it lit $1.11 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Alignment Healthcare’s margin expanded by 11.2 percentage points during that time. The company’s improvement and free cash flow generation this quarter show it’s heading in the right direction, and continued increases could help it achieve long-term cash profitability.

Alignment Healthcare’s free cash flow clocked in at $139.1 million in Q3, equivalent to a 14% margin. This result was good as its margin was 11.6 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Alignment Healthcare is a profitable, well-capitalized company with $644.1 million of cash and $329.7 million of debt on its balance sheet. This $314.4 million net cash position is 8.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Alignment Healthcare beat analysts’ revenue and EPS expectations this quarter. We were also glad its full-year EBITDA guidance trumped Wall Street’s estimates. Overall, we think this was a strong quarter with some key metrics above expectations. The stock traded up 8.1% to $18.58 immediately following the results.

Updated: December 4, 2025 at 11:09 PM EST

Before making an investment decision, investors should account for Alignment Healthcare’s business fundamentals and valuation in addition to what happened in the latest quarter.

Alignment Healthcare is a high-quality business worth owning. For starters, its revenue growth was exceptional over the last five years, and analysts believe it can continue growing at these levels. And while its operating margins reveal poor profitability compared to other healthcare companies, its customer growth has been marvelous. On top of that, Alignment Healthcare’s rising cash profitability gives it more optionality.

Alignment Healthcare’s P/E ratio based on the next 12 months is 95.5x. There’s no doubt it’s a bit of a market darling given the lofty multiple, but we don’t mind owning a high-quality business, even if it’s expensive. We’re in the camp that investments like this should be held for at least three to five years to negate the short-term price volatility that can come with high valuations.

Wall Street analysts have a consensus one-year price target of $21.21 on the company (compared to the current share price of $19.36).