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Why Oscar Health Stock Tumbled by 22% on Tuesday

By Eric Volkman – Dec 14, 2021 at 4:18PM

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A prominent investment bank isn't so hot on the company's prospects.

What happened

One of the sicker stocks on the market Tuesday was next-generation health insurance provider Oscar Health (OSCR -1.21%). The company's share price fell by almost 22% following the publication of a downbeat analyst note from an influential investment bank.

So what

Goldman Sachs analyst Nathan Rich launched coverage of the U.S. managed care healthcare segment. His outlook is generally positive, not least because he feels that the large-cap title in the segment could see annual profitability growing by 13%.

Medical professionals conferring in a hospital lobby.

Image source: Getty Images.

However, Rich has a more pessimistic view of Oscar Health.

He believes that the company might struggle to be profitable, due to its presence in the competitive individual and family plan market. The analyst is initiating his coverage of Oscar Health by tagging it with a sell recommendation, at a price target of $6.50 per share -- a queasy 38% below Monday's close. No wonder the shares dropped so precipitously the day after.

Now what

While Oscar Health has attracted some attention from investors, Rich's view of the company's prospects is accurate -- it operates in a busy market that's loaded with well-capitalized and powerful companies. While it has a potentially sharp competitive edge with its +Oscar technology platform, it hasn't yet proven that it can leverage this system in a meaningful way.

And with a lengthening string of bottom-line losses, perhaps more crucially for investors it also hasn't yet proven that it can make a buck.

That said, the creaky U.S. health insurance system could certainly use a fresh blast of innovation that forward-thinking companies like Oscar Health are able to provide. If the company can show it's making headway in this respect, and gaining market share while doing so, we might see a dramatic reversal of its general downward price share trajectory.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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