By most measures, Alignment Healthcare Inc., a provider of Medicare Advantage plans to seniors, has had a successful decade since its founding in 2013.
The Orange-based company (Nasdaq: ALHC) has grown its members from fewer than 13,000 in 2014 to over 108,000 today.
Its 2022 revenue jumped 23% to $1.43 billion, highlighted by fourth-quarter results, reported on Feb. 28, that beat analysts’ estimates.
“Alignment Healthcare’s relentless focus on quality allowed us to deliver strong financial results in 2022, having exceeded or met our guidance across all four of our key performance indicators for the eighth consecutive quarter,” founder and Chief Executive John Kao said in a statement on the 2022 results.
So why did the stock fall 26% in the two subsequent trading sessions, hitting a 52-week low? At press time, its shares were $7.40 each with a $1.4 billion market cap.
Goldman Sachs analyst Nathan Rich attributed the sharp decline to Alignment’s 2023 forecasts for a wider loss than analysts expected and its medical loss ratio (MLR), a financial measurement used to pay claims. Rich reduced his target price from $21 to $14.
20% Growth in 2023
Kao, a longtime veteran of the healthcare industry, began Alignment in 2013 after he saw poor service given to his mother. He developed technology to help seniors get customized health insurance plans that can include coverage for things like vision, dental and hearing exams for elderly or disabled beneficiaries.
The company leverages data from its proprietary technology to develop personalized care plans for members that can lower costs.
He quickly grew the business, telling the Business Journal in 2019 that he aimed to top $1 billion in sales, a goal that he met in 2021. Sales growth will continue this year as Alignment forecasts revenue of $1.705 billion to $1.730 billion, the midpoint of which implies a 20% growth from 2022.
The Business Journal has twice honored Kao, first as Innovator of the Year in 2019 and then as a Businessperson of the Year in the healthcare sector in 2021 for successfully taking his company public.
Kao told analysts that the company has four goals this year: improving quality and cost initiatives; expanding its network; improving its products; and employing a broader distribution strategy.
Some are still skeptical about the company, saying the market for Medicare Advantage insurers is crowded, with the number of plans growing as fast as the customer base.
In a prescient move, JPMorgan analyst Lisa Gill downgraded the shares to neutral from overweight on Feb. 24, four days before the fourth-quarter results were announced. She said the key to Alignment increasing its share price is returning to annual membership growth of more than 20%, which it hasn’t done in the past two years.
Alignment forecasts its health plan membership will grow as much as 6.5% this year to 115,000.
Still, Gill said the company has plenty of runway to grow, noting that it’s offering plans in only 38 counties in the U.S.
“The growth opportunity is substantial,” Gill said in a note to investors. “We believe ALHC deserves to trade at a premium multiple relative to other currently unprofitable managed care peers.”