Alignment Healthcare (ALHC)

Health insurance company Alignment Healthcare (NASDAQ:ALHC) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 47.5% year on year to $926.9 million. Guidance for next quarter’s revenue was better than expected at $957.5 million at the midpoint, 1.3% above analysts’ estimates. Its GAAP loss of $0.05 per share was 59.7% 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 $3.00 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.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Alignment Healthcare’s 30.3% annualized revenue growth over the last five years was incredible. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Alignment Healthcare’s annualized revenue growth of 40.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its number of customers, which reached 217,500 in the latest quarter. Over the last two years, Alignment Healthcare’s customer base averaged 38.8% year-on-year growth. Because this number is in line with its revenue growth, we can see the average customer spent roughly the same amount each year on the company’s products and services.

This quarter, Alignment Healthcare reported magnificent year-on-year revenue growth of 47.5%, and its $926.9 million of revenue beat Wall Street’s estimates by 4.4%. Company management is currently guiding for a 40.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 32.6% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is noteworthy and implies the market is baking in 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 6.2% 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 3 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 6 percentage points on a two-year basis. These data points are very encouraging and shows momentum is on its side.

In Q1, Alignment Healthcare generated a negative 0.6% operating margin.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Alignment Healthcare’s earnings losses deepened over the last five years as its EPS dropped 13.2% annually. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences.

In Q1, Alignment Healthcare reported EPS at negative $0.05, up from negative $0.25 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 $0.48 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While Alignment Healthcare’s free cash flow broke even 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 2.8%. This means it lit $2.76 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Alignment Healthcare’s margin expanded by 3.2 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and continued increases could help it achieve long-term cash profitability.

Alignment Healthcare broke even from a free cash flow perspective in Q1. This result was good as its margin was 3.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Alignment Healthcare is a well-capitalized company with $479.5 million of cash and $329.5 million of debt on its balance sheet. This $150 million net cash position is 4.3% 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.

We were impressed by how significantly Alignment Healthcare blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad it raised its full-year revenue and EBITDA guidance. Overall, we think this was a solid quarter with some key metrics above expectations. The stock remained flat at $16.77 immediately after reporting.

Updated: May 22, 2025 at 11:56 PM EDT

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.

There are multiple reasons why we think Alignment Healthcare is an amazing business. To begin with, its revenue growth was exceptional over the last five years, and its growth over the next 12 months is expected to accelerate. And while its operating margins reveal poor profitability compared to other healthcare companies, its customer growth has been marvelous. Additionally, Alignment Healthcare’s astounding EPS growth over the last three years shows its profits are trickling down to shareholders.

Alignment Healthcare’s EV-to-EBITDA ratio based on the next 12 months is 50.3x. You get what you pay for, and in this case, the higher valuation is warranted because Alignment Healthcare’s fundamentals shine bright. We think the stock is attractive here.

Wall Street analysts have a consensus one-year price target of $18.22 on the company (compared to the current share price of $14.63), implying they see 24.6% upside in buying Alignment Healthcare in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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