Evolent Health (EVH)

Healthcare solutions company Evolent Health (NYSE:EVH) beat Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 22.8% year on year to $479.5 million. On the other hand, next quarter’s revenue guidance of $467 million was less impressive, coming in 1.2% below analysts’ estimates. Its non-GAAP profit of $0.05 per share was 52.5% below 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 $2.05 billion in revenue over the past 12 months, Evolent 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.

Examining a company’s long-term performance can provide clues about its 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, Evolent Health grew its sales at an impressive 17.5% 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 shows its demand has slowed significantly as its annualized revenue growth of 7.1% over the last two years was well below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its number of average lives on platform, which reached 78.05 million in the latest quarter. Over the last two years, Evolent Health’s average lives on platform averaged 53% 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’s revenue fell by 22.8% year on year to $479.5 million but beat Wall Street’s estimates by 2.6%. Company management is currently guiding for a 27.8% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.7% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and suggests its newer products and services will spur better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Although Evolent Health 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 1.8% 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.

On the plus side, Evolent Health’s operating margin rose by 2.4 percentage points over the last five years, as its sales growth gave it operating leverage. The company’s two-year trajectory shows its performance was mostly driven by its recent improvements.

This quarter, Evolent Health’s breakeven margin was up 2.8 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

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 breakeven over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q3, Evolent Health reported adjusted EPS of $0.05, in line with the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Evolent Health’s full-year EPS of negative $0 will flip to positive $0.60.

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.

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, an encouraging sign is that Evolent Health’s margin expanded by 3.8 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Evolent Health’s free cash flow clocked in at $6.85 million in Q3, equivalent to a 1.4% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

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 1.8%, meaning management lost money while trying to expand the business. Investors are likely hoping for a change soon.

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. Unfortunately, Evolent Health’s ROIC averaged 2.2 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Evolent Health’s $1.08 billion of debt exceeds the $140.3 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $136 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.

Revenue and EBITDA beat Wall Street's expectations, which are big positives. On the other hand, guidance fell short of estimates. Overall, this was a mixed quarter. The stock traded up 15% to $6.90 immediately after reporting.

Updated: November 25, 2025 at 11:18 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Evolent Health.

Evolent Health isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s growth in average lives on platform was surging, the downside is its operating margins are low compared to other healthcare companies.

Evolent Health’s P/E ratio based on the next 12 months is 18x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $11.04 on the company (compared to the current share price of $4.25).

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.