This chart has to come with a “graphic content warning” because it shows an absolutely brutal beating:
The share price of United Healthcare (UNH) is down nearly 60% in a month. At $250 a share, it’s closing in on its pandemic lows just above $200.
This isn’t some penny stock we’re talking about. UnitedHealthcare is a premier healthcare stock, long considered one of those “perfect” stocks that offers consistent earnings growth and also mostly immune from economic weakness, because health insurance is pretty close to a consumer staple…
Back in December, UNH sold off from $600 to $500 after its CEO was gunned down on a New York City sidewalk. Shares got a 20% sympathy bounce back to $600 in January.
Check the news feed from just three weeks ago and you’ll find headlines like:
“UnitedHealth Group (UNH): One of the Best Stocks that Will Always Grow”
And “Jim Cramer Calls UnitedHealth Group (UNH) a “Juggernaut” and Says: “This Thing Can Do Whatever It Wants!”
Oof.
The thing is: the CEO’s murder aside, the story had already started going bad. UNH missed first quarter earnings estimates, guided the rest of 2025 lower and got hit with a bunch of downgrades.
It’s been my experience that bad stories tend to get worse. Like when that door blew off a Boeing airplane – that wasn’t a one-off event. It was the first sign of systemic problems with Boeing…
The same “bad stories get worse” dynamic has certainly been in play for UnitedHealthcare…
Whom Do You Serve
The biggest irony for UnitedHealthcare is a common problem for any public company. Yes, you serve your customers, but you also serve your shareholders, who want to see profits grow. And for UNH, it’s pretty obvious that part of its profitable business model was denying coverage for insurance claims. If the amount of money you take in from premiums paid is stable, one way to goose your earnings is to pay out as little as you can…
Even if you force a customer to jump through hoops and resubmit paperwork a few times, even if you can push the payout of a claim out a couple months, that’s enough time to keep your current quarter looking better than it otherwise might.
Of course, that business model is exactly why everyone hates health insurance companies, and UnitedHealth’s decision to be a little more customer-friendly and maybe cut down on murders comes at shareholders’ expense, via the lowered profit outlook.
So now the new CEO has quit and the Department of Justice has opened an investigation for possible Medicare fraud…the story has definitely gotten worse.
It’s about time to start nibbling on the stock…
It’s Cheap Now
UNH recorded $400 billion in revenue over the last 12 months, and booked $23.90 in per share profits. The market cap has fallen to $270 billion, meaning that you’d be paying 0.7 times revenue to own the stock. The forward P/E is now just under 12 and the PEG ratio is 0.67 (under 1 is considered cheap).
I can’t tell you that the UNH story won’t get worse. And I wouldn’t expect a huge rally back to $500 or $600 anytime soon. The company is definitely going to be in “prove it” mode for a little while.
Still, this decline has hit extreme levels, and the stock is now cheap enough where the risk/reward has shifted toward “reward.”
Also, do not be surprised if a very famous investor who is about to retire, who is sitting on historic levels of cash and who really, really likes insurance companies is making moves on UNH right now…could be Warren Buffett’s last hurrah…
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter:https://twitter.com/BritonRyle
