The S&P 500 index is down 11% in 2022 so far. But viewing the bigger picture, the index has delivered 13.5% annual total returns over the last decade. This would have turned a $10,000 investment in August 2012 into over $35,000 with dividends reinvested. 

Even better is to beat the market, not match it. This could have been done by investing in a number of stocks. The health insurer Humana (HUM 1.03%) has obliterated the market over the past 10 years, parlaying a $10,000 investment into more than $79,000 with dividends reinvested. This equates to a blistering 23% annualized return. 

But can investors achieve similar, market-trouncing returns in the years to come with Humana stock? Let's dig into the company's fundamentals and valuation to decide.

Continuing to outpace analysts' expectations

In late July, Humana released its financial results for the second quarter ended June 30. The company managed to surpass the average analyst estimate for revenue and non-GAAP (generally accepted accounting principles) diluted earnings per share (EPS) during the quarter. 

Humana reported $23.7 billion in revenue in the second quarter, which is equivalent to a 14.6% year-over-year growth rate. This narrowly topped the analyst revenue consensus of $23.4 billion for the quarter. And it was the eighth quarter out of the last 10 quarters that the company has done so. 

Humana's total medical, specialty, and Medicare Advantage membership edged 0.6% higher over the year-ago period to 26.8 million at the end of the quarter. That's because more consumers are turning to medical, dental, vision, and supplemental Medicare insurance to hedge against rising medical care costs. Along with premium increases that were passed onto customers to offset inflation in medical care costs, that explains the company's strong revenue growth in the second quarter. 

Humana produced $8.67 in adjusted diluted EPS during the quarter, which equates to a 25.8% year-over-year growth rate. This easily exceeded the average analyst forecast of $7.67 for the quarter. How did the company pull this off for the 10th quarter out of the past 10 quarters? 

Despite Humana's increased benefits and operating costs, its non-GAAP net margin surged 60 basis points higher over the year-ago period to 6.1% in the second quarter. Paired with a 1.7% decline in outstanding share count to 127.3 million, this is how the company's adjusted diluted EPS growth came in much higher than revenue growth. 

Best of all, this double-digit growth looks poised to continue. Thanks to a robust growth forecast for the health insurance industry, analysts expect that Humana will generate 14.2% annual earnings growth for the next five years. 

A doctor consults with a patient.

Image source: Getty Images.

A payout with nowhere to go but up

Given that the S&P 500 index yields 1.5%, Humana's 0.6% dividend yield isn't going to be appealing to most income investors. But patient investors with plenty of time before they plan to live off of dividends shouldn't underestimate the stock. 

That's because it's anticipated that Humana's dividend payout ratio will be just 12.3% in 2022. This gives the company plenty of flexibility to grow the dividend ahead of earnings, which is why I'm expecting mid-teens annual dividend growth for the foreseeable future. 

The stock is fairly priced

Humana is a fundamentally healthy business. And the stock's valuation doesn't seem to be excessive. Humana's forward price-to-earnings (P/E) ratio of 17.8 is only slightly above the healthcare-plans industry average forward P/E ratio of 16.9. Since the company's 14.2% growth potential is moderately better than the projected 12.6% annual earnings growth of the healthcare-plans industry, this supports the argument that Humana is attractively valued.