Buying and holding stocks that outperform the market is the key to success as an investor. This can more than make up for the inevitable losing stocks that everyone has in their portfolio at some point.

The health insurer Centene (CNC 0.34%) has been an incredible wealth-compounding growth stock for years now. And there's every reason to believe that this will persist in the future. An examination of the company's fundamentals and valuation bears out this point.

The company is a perpetual growth machine

With its health insurance products covering 1-in-15 Americans throughout the United States, Centene is a major health insurer. Just how dominant is the company? Centene is the largest Medicaid-managed care organization and Health Insurance Marketplace carrier in the country.

The company logged $35.9 billion in total revenue in the third quarter, which was up 10.7% over the year-ago period. What was behind the large-cap company's growth during the quarter?

With the prevalence of chronic diseases on the rise throughout the globe and growing medical care costs, more consumers are turning to health insurance for peace of mind. That's why the market research firm Facts & Factors anticipates that the global health insurance market will compound at 9.5% annually from $2.1 trillion in 2021 to $3.6 trillion by 2028.

These factors fueled organic growth in Centene's Medicaid and Medicare businesses. Along with its acquisition of Magellan Health, this led to a 4.5% year-over-year increase in the company's medical membership base to 26.8 million for the quarter. And to compensate for climbing healthcare costs, Centene also raised its members' premiums. This is what resulted in double-digit revenue growth in the quarter.

Centene posted $1.30 in non-GAAP (adjusted) diluted earnings per share (EPS) during the third quarter. For context, this was a 3.2% growth rate over the year-ago period. Due to higher growth in the cost of services (15.9%) and selling, general, and administrative expenses (12.2%) categories, the company's non-GAAP net margin dipped nearly 20 basis points year-over-year to 2.1% for the quarter. This was only partially neutralized by a 1.7% decline in Centene's outstanding diluted share count to 580.6 million in the quarter. This is why adjusted diluted EPS growth lagged behind revenue growth during the quarter.

As a result of the aforementioned industry tailwinds, analysts believe that Centene's adjusted diluted EPS will grow at a 13.7% clip each year through the next five years.

A pharmacist serves customers at a pharmacy.

Image source: Getty Images.

An enviable balance sheet

Centene is a growing business, and the company's financial condition looks to be solid as well.

The company's net debt balance was just $1.1 billion as of the third quarter. The company is on track to generate $4.7 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2022. This is a net-debt-to-EBITDA ratio of just 0.2, which means that Centene could pay off all of its long-term debt in just a few months if it chose to do so.

Centene is a blue-chip bargain

Centene is a world-class health insurer. And best of all, the stock appears to be a steal.

Centene's forward price-to-earnings (P/E) ratio of 13.4 is well below the healthcare plans industry's average forward P/E ratio of 17.3. This is despite the fact that the company's annual earnings growth potential of 13.7% is superior to the industry average of 12.8%. Simply put, Centene is an above-average growth stock trading at a below-average valuation. That arguably makes it a compelling buy for growth investors.