Source: Humana.

About three-quarters of Humana Inc.'s (NYSE:HUM) revenue comes from Medicare Advantage members, far more than competing insurers such as UnitedHealth Group or WellPoint. That means that Humana's success or failure is more closely tied to whether aging baby boomers select a Medicare Advantage or Medi-Gap supplemental insurance plan.

Since 10,000 boomers will turn 65 daily through 2029, there will be plenty of opportunity for Humana sales to grow, but that may not mean that now is the right time to buy Humana's stock. Having said that, let's take a closer look at whether Humana's shares may make sense today.

Debating earnings
Humana's Medicare Advantage membership jumped 16.4%, or by 333,000 people, to 2.36 million over the past year. That's helped sales climb from $7.5 billion in the second quarter of 2013 to $8.8 billion in the second quarter of 2014.

However, the ability to translate that revenue growth into earnings is probably more important to shareholders, and Humana's earnings forecast isn't overly encouraging.

Although competitors such as WellPoint are guiding for earnings growth this year, Humana is predicting that its earnings may fall. The company expects earnings per share of between $7.25 and $7.75 this year, which at the midpoint would represent a drop from the $7.73 per share it earned last year.

Source: Humana

That has dented Wall Street expectations. Over the past 90 days, analysts have reduced their estimate for Humana's earnings per share this year from $7.80 to $7.73.

However, analysts remain optimistic about 2015. They've increased their outlook for 2015 from $8.74 to $8.78.

That disconnect may suggest that industry watchers expect that either Humana is downplaying its potential profit for this year, or that Medicare Advantage plan demand and pricing will be better next year than it is this year.

It could also suggest that Humana's individual plans, which represent a small portion of Humana's overall sales, could have more of an impact on profit next year. After all, ACA enrollment did help lift the company's non-Medicare individual plan membership by 122% during the first two quarters of 2014.

Debating valuation
No one will ever confuse Humana with a high-growth technology stock. Insurer profit margins are notoriously thin, and as a result, investors tend to value them more cheaply than they do growth stocks.

That's clearly the case when it comes to Humana's price-to-sales ratio. Even though Humana is trading at just 0.45 trailing-12-month sales, which is cheap by technology stock standards, that ratio is just about at a five-year high. The situation is similar at WellPoint, because both of these stocks have made a huge move in the past year.

WLP PS Ratio (TTM) Chart

WLP PS Ratio (TTM) data by YCharts

Price-to-earnings ratios paint a similar picture. Humana is trading at nearly 16.5 times next year's expected earnings per share, which is just about a new 10-year high. That would suggest there's not a lot of room, in terms of valuation, for Humana to run higher, at least not without a boost to guidance.

Fool-worthy final thoughts
There's plenty to like about insurers, given that exchanges exceeded industry projections, pricing will head higher next year, and Medicaid expansion continues to gain a foothold.

However, that opportunity may be fairly well reflected in current share prices. If so, that would suggest that investors considering new positions in these companies may want to wait patiently for a pullback. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.