Astrana Health (ASTH)

Healthcare services company Astrana Health missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 53.4% year on year to $620.4 million. Next quarter’s revenue guidance of $635 million underwhelmed, coming in 2.7% below analysts’ estimates. Its GAAP profit of $0.14 per share was 33.1% below analysts’ consensus estimates.

Company Overview

Formerly known as Apollo Medical Holdings until early 2024, Astrana Health (NASDAQ:ASTH) operates a technology-powered healthcare platform that enables physicians to deliver coordinated care while successfully participating in value-based payment models.

The healthcare technology industry focuses on delivering software, data analytics, and workflow solutions to hospitals, clinics, and other care facilities. These companies enable providers to streamline operations, optimize patient outcomes, and transition to value-based care models. They boast subscription-based revenues or long-term contracts, providing financial stability and growth potential. However, they face challenges such as lengthy sales cycles, significant upfront investment in technology development, and reliance on providers’ adoption of new tools, which can be hindered by budget constraints or resistance to change. Over the next few years, the sector is poised for growth as providers increasingly prioritize digital transformation and efficiency in response to rising healthcare costs and patient demand for seamless care. Tailwinds include the growing adoption of AI-driven tools for patient engagement and operational improvements, government incentives for digitization, and the expansion of telehealth and remote patient monitoring. However, headwinds such as tightening hospital budgets, cybersecurity threats, and the fragmented nature of healthcare systems could slow adoption.

Astrana Health competes with other healthcare management organizations including Optum (owned by UnitedHealth Group), Privia Health (NASDAQ:PRVA), Oak Street Health (acquired by CVS Health), and Agilon Health (NYSE:AGL), as well as regional players like Heritage Provider Network in California.

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 just $2.25 billion in revenue over the past 12 months, Astrana Health lacks scale in an industry where it matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive. On the bright side, Astrana Health’s smaller revenue base allows it to grow faster if it can execute well.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Astrana Health grew its sales at an exceptional 29% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful 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. Astrana Health’s annualized revenue growth of 35.9% 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 most important segment, . Over the last two years, Astrana Health’s revenue averaged 39.5% year-on-year growth.

This quarter, Astrana Health achieved a magnificent 53.4% year-on-year revenue growth rate, but its $620.4 million of revenue fell short of Wall Street’s lofty estimates. Company management is currently guiding for a 30.6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 26.1% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is healthy and implies the market sees success for its products and services.

Astrana Health was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.6% was weak for a healthcare business.

Looking at the trend in its profitability, Astrana Health’s operating margin decreased by 13.1 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 4.7 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q1, Astrana Health generated an operating profit margin of 3.3%, down 4.1 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

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.

Astrana Health’s EPS grew at a solid 8.3% compounded annual growth rate over the last five years. However, this performance was lower than its 29% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Astrana Health’s earnings to better understand the drivers of its performance. As we mentioned earlier, Astrana Health’s operating margin declined by 13.1 percentage points over the last five years. Its share count also grew by 18.7%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Astrana Health reported EPS at $0.14, down from $0.31 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Astrana Health’s full-year EPS of $0.72 to grow 92.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Astrana Health has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4%, subpar for a healthcare business.

Taking a step back, we can see that Astrana Health’s margin dropped by 6.9 percentage points during that time. If the trend continues, it could signal it’s in the middle of a big investment cycle.

Astrana Health’s free cash flow clocked in at $13.56 million in Q1, equivalent to a 2.2% margin. This cash profitability was in line with the comparable period last year but below its five-year average. We wouldn’t read too much into it because investment needs can be seasonal, leading to short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Astrana Health’s five-year average ROIC was 15.3%, beating other healthcare companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Astrana Health’s ROIC has unfortunately decreased significantly. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Astrana Health reported $260.9 million of cash and $451.4 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $164.5 million of EBITDA over the last 12 months, we view Astrana Health’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $10 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Astrana Health provide EBITDA guidance for next quarter that slightly beat analysts’ expectations. On the other hand, its revenue guidance for next quarter missed significantly and its revenue and EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.9% to $32.11 immediately following the results.

Updated: May 22, 2025 at 11:33 PM EDT

Are you wondering whether to buy Astrana Health or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are things to like about Astrana Health. First off, its revenue growth was exceptional over the last five years. And while its diminishing returns show management's recent bets still have yet to bear fruit, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its solid ROIC suggests it has grown profitably in the past.

Astrana Health’s EV-to-EBITDA ratio based on the next 12 months is 6x. When scanning the healthcare space, Astrana Health trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $50.10 on the company (compared to the current share price of $24.47), implying they see 105% upside in buying Astrana Health 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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