Since December 2024, Evolent Health has been in a holding pattern, posting a small return of 2% while floating around $11.20.
Is now the time to buy Evolent Health, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Evolent Health Not Exciting?
We're cautious about Evolent Health. Here are three reasons why you should be careful with EVH and a stock we'd rather own.
1. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Evolent Health’s revenue to drop by 10.2%, a decrease from its 22.5% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
2. Breakeven Free Cash Flow Limits Reinvestment Potential
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.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Evolent Health’s five-year average ROIC was negative 9.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.
Final Judgment
Evolent Health’s business quality ultimately falls short of our standards. That said, the stock currently trades at 20.1× forward P/E (or $11.20 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Evolent Health
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
