Finding bargains in beaten down insurtech stocks

Bad news Erin — insurtech companies prevented those scams. But they’re failing to protect investors from their tanking stock prices this year. Still, when a stock falls low enough, it starts to look like a bargain.

Overpromising, underdelivering

Insurtech (insurance technology) was one of the hottest industries of 2020. These companies promised insurance with a digitized future via:

• Better insurance pricing for customers — and less insurance claims insurers.
• Lower customer acquisition costs and expenses all-around using tech.

Instead, 2021 welcomed insurtech investors with crashing stock prices. Lemonade, the top-performing IPO of 2020, was down 32% in 2021. Nearly every other insurtech stocks had similar fates.

Their earnings showed a similar story: massive losses with promised benefits not yet translated into profits. But being the clever investors we are, it’s time to look through the mess for discounts.

Finding gems in the insurtech rough

Among the red sea of insurtech stocks is Oscar Health — a health insurance provider using tech to provide a better experience.

Doing what tech does best, Oscar is digitizing and improving an archaic and largely offline industry. With Oscar’s app, consumers can: review/file claims, receive lab results and prescriptions, find doctors, book appointments, etc.

Since going public in March at $39, OSCR fell to $12. But Oscar’s fortune took a turn in recent weeks — up nearly 50%:

• IPO investor lockup expired in Aug — leading to insiders selling.
• In a big vote of confidence, Oscar’s co-founder purchased over $32m worth of stock in the past few weeks.

In the first 6 months of 2021, compared to first 6 months of last year:

• Oscar’s memberships grew 35%.
• Total sales — mostly from insurance premiums — is up 340%.

Investors: Big losses? No problem

Taking its high growth into consideration, many could argue that Oscar is undervalued at current prices — it’s valued like a legacy insurance company instead of a high-growth tech company.

Where’s the upside? The US health insurance industry is a massive $1.1t market, dominated by UnitedHealth Group — which made $201b in premiums in 2020.

With an expected $3.2-3.3b in premiums for 2021, Oscar has a long growth runway ahead of it. Despite losing $406m in 2020 and $73m in the recent quarter, Oscar has ample cash on hand ($2.3b) to fuel its growth and path to profitability.