Digital disruptors are the future of the healthcare industry. There are two stocks in the space to consider.
Wall Street loves to punish medical stocks for short-term stumbling while missing out on innovative possibilities. The sector's reputation for regulatory complexity and unpredictable reimbursement changes has created a risk-averse investment environment that consistently underestimates companies building the future of American healthcare.
This myopia view ignores the fundamental changes that are taking place beneath the surface. Healthcare technology companies are dismantling decades-old barriers between patients and care and creating direct payment models that completely avoid insurance bureaucracy.
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Traditional healthcare inventory trades at Medicare Advantage's Registered Growth and Medical Loss Ratio (MLR), but these digital disruptors are building subscription-based businesses with software-like economy and large, gross-addressable markets.
The two companies illustrate this transformation. One is maintaining strong profitability while navigating industry headwinds and is experiencing explosive growth despite recent partnership drama. Both face meaningful risks that create opportunities for entry for investors who understand the long-term digitalization trends that reshape American healthcare.
Oscar's profitable start meets cost pressure
Oscar's health (OSCR) 7.99%)) Although it is based on a strong Q1 start based on a profitable start through 2025, new challenges in the Q1 eased momentum. The company reported revenue of $3 billion (an increase of 42% year-on-year) and net profit of $275 million, up from $177 million the previous year.
This 55% profit growth highlights Oscar's scalable technology model, but investors should also consider recent indications of cost pressure and volatility. The company's MLR rose to 75.4% in the first quarter, but is still expected to increase within industry standards. This dramatic guidance revision shows significant cost headwinds that could pressure margins throughout the year.
Oscar's differentiation lies in its digital first infrastructure, focusing on the digital age. Unlike legacy insurance companies, Oscar designed its operations around digital first member engagement – leveraging telehealth, artificial intelligence (AI)-powered health assessments and predictive analytics. This approach allowed the company to serve approximately 2 million members while maintaining competitive management costs.
+Oscar's platform is a long-term, long-term opportunity, offering third-party providers the possibility to license care navigation and engagement tools. This strategy can generate revenue for high margin software, but monetization beyond internal use is still in its early stages. Its success may be essential as potential changes to affordable care law subsidies introduce new uncertainties into individual insurance markets.
HIMS navigates explosive growth and regulation crosswinds
Hims & Hers Health (HIMS) 16.02%)) It offers dramatic performance through 2025, highlighting both the explosive potential and inherent risks of a disruptive healthcare model. The stock reached an all-time high of $72.98 in February, and then encountered a major turbulence from regulatory scrutiny and partnership disputes.
The growth of the company's underlying business remains exceptional despite headline challenges. First quarter revenues rose 111% year-on-year to $586 million, while income adjusted before interest, tax, depreciation and amortization (EBITDA) to almost $91 million. More importantly, HIMS & HERS has expanded its subscriber base to 2.4 million customers (an increase of 38%) and currently uses a personalized treatment solution that commands nearly 60% of premium pricing.
However, the Novo Nordisk partnership end in June caused a significant decline in stocks. This dispute over the ongoing sales of HIMS & HERS composite weight loss drugs exposes the company's central vulnerability, namely the regulatory dependence on the legally grey area of the combined pharmaceutical products.
Beyond weight management, HIMS & HERS has systematically expanded to mental health, dermatology and hormone replacement therapy, with over 80% of its 2024 revenue coming from GLP-1 sources. Each vertical leverages our direct consumer infrastructure to create cross-selling opportunities that increase the lifetime value of our customers. However, this expansion strategy faces increased competition between funded digital health competitors and increasingly digitally savvy incumbents.
Comparing and examining digital healthcare transformation
In exchange for exposure to transformative business models, the healthcare technological revolution creates attractive investment opportunities for investors who can withstand regulatory uncertainty and competitive pressures. Oscar Health offers a mature, profitable approach to technology-enabled insurance with multiple means to expand margins and diversify revenues. The company's established market position and strong balance sheet provide defensive properties, but its technology platform is positioned to capture value from the digital transformation of healthcare.
HIMS & HERS exposes high-risk rewards to the direct payment healthcare revolution, and patients bypass insurance for convenient and affordable treatments. The company's ambitious 2030 target is $6.5 billion, with a $1.3 billion adjusted EBITDA reflects the management's confidence to expand into comprehensive primary care services, expanding its specialty drugs.
George Budwell has no position in any of the stocks mentioned. Motley Fools introduces and recommends Hims & Hers Health. Motley's Fool recommends Novo Nordisk. Motley Fools have a disclosure policy.
