Once a stalwart of healthcare investing, UnitedHealth Group (NYSE: UNH) has recently experienced a significant downturn. Its rapid stock price decline has led many investors to now view it as a “falling knife,” a term for an asset in sharp decline that carries the risk of further losses for those who try to buy it. A combination of significant challenges for the healthcare giant has led to a loss of investor confidence and a subsequent decrease in its stock price.
UnitedHealth Group has lost over 50% of its value in just one month or so. This large decline represents a meaningful loss of market capitalization for what was previously one of America’s most stable blue-chip companies. Separately, see – What’s Happening With CoreWeave Stock?
Rising Medical Costs Are Squeezing Margins
Higher medical costs are squeezing UnitedHealth Group’s profits and are a key reason for its recent downturn. Since the pandemic, more people are using healthcare, leading to bigger medical bills for the company. As a result, UnitedHealth is finding it tough to keep these costs down. Its Medical Benefits Ratio, which shows how much of its premium money goes to medical costs, jumped from 82% in 2022 to 85.5% in 2024. The company’s reported net margins contracted from 6.2% to 3.6% over this period.
“In UnitedHealthcare’s Medicare Advantage business we had planned for 2025 care activity to increase at a rate consistent with the utilization trend we saw in 2024. Instead though, first quarter 2025 indications suggest care activity increased at twice that rate.” said Andrew Witty, chief executive officer of UnitedHealth Group in his prepared remarks for the earnings conference call on April 17, 2025.
Leadership Changes
Compounding the challenges of rising medical costs, UnitedHealth Group recently faced an unexpected leadership shift with the sudden departure of CEO Andrew Witty. This transition has heightened investor anxiety, particularly as it occurs during a period of significant operational strain for the company.
While UnitedHealth Group has announced its succession plan, bringing back Stephen Hemsley, who previously served as CEO from 2006 to 2017 and has been with the company since 1997, the market reaction has been negative. Investors seem uneasy about the timing of Witty’s departure.
Suspended Guidance Doesn’t Bode Well Either
Perhaps the most telling sign of UnitedHealth Group’s difficulties was its recent unusual decision to withdraw its financial outlook for the entire year. This uncommon action from a company typically recognized for its cautious yet dependable guidance has deeply unsettled investors. Just last month, UnitedHealth lowered its full-year 2025 earnings outlook to $24.65-25.15 per share, down from the previous range of $26.00-26.50 per share.
Criminal Investigation Becomes The Final Blow
The most devastating development came recently, with The Wall Street Journal reporting that UnitedHealth is now under criminal investigation for possible Medicare fraud. Medicare Advantage represents a substantial and growing portion of UnitedHealth’s business, making this probe particularly consequential for the company’s future.
Valuation Is Attractive But Comes With Risks
While UnitedHealth Group’s current valuation metrics might appear appealing to investors seeking undervalued opportunities, a closer look reveals underlying risks. Following its significant stock decline, the company’s price-to-sales ratio of 0.7 times its trailing revenues is substantially lower than its five-year average of 1.4 times. Furthermore, UNH stock has a price-to-earnings (P/E) ratio of only 10, based on its trailing adjusted earnings of $27.96. This is notably below the stock’s average P/E ratio of 21 over the last five years. However, these low figures don’t quite look attractive due to the significant uncertainty surrounding the company’s future, especially in the light of potential financial repercussions from a federal criminal investigation.
Buy or sell UnitedHealth Group (UNH) stock?
The Verdict – Is UNH Worth The Risk?
For investors considering buying UNH stock in the current fall, the crucial consideration is not simply the stock’s lower price, but whether the company’s fundamental problems are fully accounted for in its current valuation.
The fact that UnitedHealth is having operational problems and is under regulatory scrutiny makes the risks complex. While some investors may find the steep stock drop as a buying opportunity, the constant flow of negative news indicates that the stock price might not have hit rock bottom yet.
Until there is more transparency regarding the Medicare fraud investigation and clear signs that rising medical costs are leveling off, we believe that UnitedHealth remains a high-risk investment. In contrast, CVS has seemingly handled things better. See: UNH Stock vs CVS Stock.