The share price of Oscar Health (OSCR 2.51%) has been in a nosedive since March, when the stock first began trading publicly. It now trades at below $16 per share -- down by more than half from the $36 at which it opened on its first day, March 3. During that period, the S&P 500 has risen by 13%.

What has gone wrong for the healthcare company to drive it down by this much in such a short period? And more importantly, has this reduction in price created a buying opportunity that might be too good for investors to resist?

Doctor putting a needle in a patient.

Image source: Getty Images.

What may be behind the sell-off

The health insurance company, which launched its operations in 2012, offers a variety of different plans for families and small businesses, and it also sells Medicare Advantage plans. The business differentiates itself from other providers by utilizing technology to make it simple for members to access virtual care and to get their questions answered through an easy-to use app and a dedicated concierge team.

Although the business looks to be promising, when Oscar Health went public earlier this year, it was around the peak of meme stock madness, and many growth stocks have been in sell-off mode since. The ARK Innovation ETF has fallen by 11% since Oscar Health's IPO, a reflection of just how bearish investors have been on growth stocks of late.

Oscar Health hasn't released any negative news during this period to warrant such a sell-off. And even if investors weren't crazy about its most recent quarterly results, those were released on May 13 -- the stock had already tumbled down to $22 by that point. It actually rallied for a short period after the earnings report was delivered. 

The issue could lie with the stock's initial valuation, which may have simply been higher than its numbers warranted. With a net loss of $406 million in 2020 -- 56% higher than in the prior year -- Oscar Health wasn't in terribly impressive shape. Plus, its 2020 revenue of $463 million was down 5%, a result that doesn't exactly scream growth. Its market cap of around $7 billion when it went public meant Oscar Health was trading at a price-to-sales ratio of 15 -- while the average stock in the Health Care Select Sector SPDR Fund trades at just 1.9 times its revenue.

The earnings report may not have helped, despite showing progress

Oscar Health's memberships as of March 31 totaled 542,220, up 29% year over year. And the company earned $369 million in revenue during Q1, more than four times what it brought in the previous year, due to an increase in memberships and overall expansion. Even the company's net loss of $87 million was $10 million smaller than its loss from the prior-year period. However, its net per-share loss of $0.98 was much worse than the $0.53-per-share loss that analysts were expecting.

Overall, the company did show improvement. But the stock was on a downward trajectory before the earnings release, and falling short of expectations may have only made things worse. 

Is Oscar Health a bargain buy?

Several analysts have set price targets for Oscar Health above $32. If it reaches those levels, then investors who buy at current prices would see the value of their stakes more than double.

And it's easy to see why those analysts may be bullish. This healthcare company does have significant potential to attract young, tech-savvy customers, which could go a long way toward boosting its revenues and getting it closer to profitability. Its app, for instance, makes it convenient for users to contact a doctor or concierge team, as well as to view their health information easily in one place. Users can even earn rewards for meeting goals related to being active.

The one drawback is that the company's healthcare plans average $516 a month, expensive compared with other providers. That could make it challenging for the company to win over new members. While its plans may offer more bells and whistles, investors may be cautious about whether that added value will translate into member growth. 

However, the sheer potential of the business makes the stock too good to resist right now. By catering to a younger crowd that's likely to be less costly to care for and partnering with health services company Cigna to help grow its business, Oscar Health is using strategies that should pay off in the long run. As of the end of January, the company had a presence in 291 counties and just 18 states; there's plenty of room for it to grow.

If you're risk-averse, you may want to wait until after the company releases its next quarterly report Aug. 12 to confirm that it is heading in the right direction. But for the long haul, Oscar Health's stock looks like it could be a winner.