Evolent Health (EVH)

Healthcare solutions company Evolent Health (NYSE:EVH) met Wall Street’s revenue expectations in Q4 CY2025, but sales fell by 27.5% year on year to $468.7 million. The company’s full-year revenue guidance of $2.5 billion at the midpoint came in 4.9% above analysts’ estimates. Its non-GAAP profit of $0.08 per share was 62.7% above analysts’ consensus estimates.

Company Overview

Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE:EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.

The healthcare technology sector provides software and data analytics to help hospitals and clinics streamline operations and improve patient outcomes, often through value-based care models. Future growth is expected as providers prioritize digital transformation to manage rising costs and patient demands. Tailwinds include the adoption of AI-driven tools and government incentives for digitization. There challenges as well, including long sales cycles and slow adoption by providers, who may be resistance to change. Tightening hospital budgets and cybersecurity threats are additional risks that could slow adoption.

Evolent Health competes with other healthcare management and technology companies such as Optum (part of UnitedHealth Group, NYSE:UNH), Signify Health (acquired by CVS Health, NYSE:CVS), and Evernorth (part of Cigna Group, NYSE:CI), as well as specialized care management firms like Magellan Health and AIM Specialty Health.

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 $1.88 billion in revenue over the past 12 months, Evolent Health is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Evolent Health grew its sales at a solid 15.2% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.

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. Evolent Health’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 2.3% over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its number of average lives on platform, which reached 79.68 million in the latest quarter. Over the last two years, Evolent Health’s average lives on platform averaged 5.5% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, Evolent Health reported a rather uninspiring 27.5% year-on-year revenue decline to $468.7 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 27.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will fuel better top-line performance.

Evolent Health’s high expenses have contributed to an average operating margin of negative 6.5% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, Evolent Health’s operating margin decreased by 17.2 percentage points over the last five years. This performance was caused by more recent speed bumps as the company’s margin fell by 18.2 percentage points on a two-year basis. We’re disappointed in these results because it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Evolent Health generated a negative 87.1% operating margin.

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.

Evolent Health’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q4, Evolent Health reported adjusted EPS of $0.08, up from negative $0.02 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 expects Evolent Health’s full-year EPS of $0.09 to grow 173%.

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.

Evolent Health broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Evolent Health’s margin dropped by 1.3 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s in the middle of an investment cycle.

Evolent Health’s free cash flow clocked in at $41.04 million in Q4, equivalent to a 8.8% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Evolent Health’s five-year average ROIC was negative 6.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

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, Evolent Health’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Evolent Health’s $989.7 million of debt exceeds the $178 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $151.2 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Evolent Health could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Evolent Health can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Evolent Health beat analysts’ EPS expectations this quarter. We were also glad its full-year revenue guidance trumped Wall Street’s estimates. On the other hand, its full-year EBITDA guidance missed. Overall, we think this was a mixed quarter. The stock remained flat at $2.53 immediately after reporting.

Updated: February 24, 2026 at 4:46 PM EST

Before deciding whether to buy Evolent Health or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Evolent Health doesn’t pass our quality test. Although its revenue growth was solid over the last five years and is expected to accelerate over the next 12 months, its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its declining operating margin shows the business has become less efficient.

Evolent Health’s P/E ratio based on the next 12 months is 10.4x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $8.50 on the company (compared to the current share price of $2.53).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.