UnitedHealth, Hims & Hers, Gambling.com - value investing with Raul Shah

20:49And so when I look at HIMSS, what I see is a platform for healthcare that will ultimately have a membership system like Costco, where people will not just get treatments and therapies for their health conditions, but also preventative care. And that's where I see the market going to. And you can see a lot of telehealth companies popping up into this space because it's a wonderful business model. Hims' gross margins are like 70 % to 80%. If you ever read the book, 100 Baggers, where Christopher Meyer talks about all the stocks that went up 100 % to 1%, one of the things they all had in common was exploding sales, but they also had fat gross margins.

21:29And we've got a company that's got exploding sales. They've grown like 80 % a year since inception, and they've got fat gross margins. And they're in an industry that is getting disrupted left, right, and center. And so I think it's a wonderful, from my perspective, when I look at it, I say this is a once-in-a-lifetime opportunity. When I look at UnitedHealthcare, you've got the biggest insurer in the entire United States. I think it's like the fourth largest employer. If you want to know the bottom line of why their stock is down, it's because their margins have gotten compressed, right? Their medical loss ratio is a lot higher than it was in the past.

22:09And health insurance companies are not like Chipotle. If Chipotle's costs go up, well, Chipotle would just raise the price the next day. You can't do that if you're UnitedHealthcare. You're just locked into a contract for a year. So you have to give UnitedHealthcare time to actually raise their premiums so that they can recoup all their higher costs. They had a lot more sick people in 2025 and in 2026 than they anticipated. They made sort of an actuarial calculation error. So their costs are a lot higher. But if you can't raise prices, what happens? Your margins get compressed. So over time, as they raise their prices, their margins will come back.

22:46Now, in terms of the overall dynamics of the health care industry, because of the ACA, you have this sort of perverse incentive to keep medical costs high. So what does that mean with some numbers? Well, for UnitedHealthcare, their profits are capped at 15%. You can't expand beyond that. If you do, you have to give rebates to your premium holders, the government contractors. So your margins are capped at 15%. Well, that's a problem because generally speaking, if you're a business owner, what do you want to do? You want to offer the highest quality good or service for the lowest price, right? You're trying to become the most efficient you can.

23:24You're trying to expand your margins as much as you can because everybody benefits when you do that. You make more profits and people get cheaper things in higher quantities. But if you price fix the margin, well, you create a perverse incentive to raise the price of your goods to match the raise in cost because it's the only way you can make money. So I'll give you some numbers. If you're UnitedHealthcare, you have to spend$0.85 at every dollar that you make on the actual member in some form of health care where you have to give$0.85 back in value. Well, okay. If you can't drop beneath that, the only way you can make more money is if you double the cost of health care and increase your revenue by the same amount.

24:07So if you take numbers, right, if it costs, you know, 85 cents for every dollar that you are making in profit that you have to pay out. Well, if you raise that cost and it's now 90, 95 cents and you raise the revenue, right, you're making a much larger nominal amount. And so you create this really perverse incentive to move both revenue and cost up in lockstep. And so ultimately, this is not like a new revelation. This has been going on for a decade. But you've got to give UnitedHealthcare time to actually raise their prices to make up for the higher costs, and the margins will come back and the stock price will go up.

24:47Gambling.com Group is a very small micro-cap company. They essentially do marketing for online casinos, sports betting, and they own a lot of gambling data with OpticOdds and OddsJam. Yeah. They provide essentially they're like an online, you know, data aggregator for people who are looking to bet. And, you know, their stock is trading at very, very low prices. But the fundamentals are fantastic. Their balance sheet's a little wonky right now. But, you know, they make, you know, 30, 40, 50 million free cash flow every single year. They've been growing at 20, 30 percent a year. It's a fantastic company.

25:22It's got 50 percent inside ownership.

25:23Raul Shah:So what's your timeline on the margins improving at United Health? That's a good question. I think, you know, I, well, first of all, they're expecting it to increase a little bit this year, like marginally. I think you'll probably see bigger increases in 2027 and 2028. Why is that? Well, for one, they're implementing AI like every other company is, but I actually think they have a good way to bring down some of their costs with AI. That's number one. Number two, they're shedding a lot of unprofitable plans that they were previously sponsoring. That's the second reason. And then they're going to raise prices.

25:59Remember, when their margins compressed last year, they were locked in. They can't do anything about their premiums. But now, you know, everyone's health insurance has probably gone up by 10, 15, 20%. And UnitedHealthcare has done the exact same thing. So, you know, they're raising their prices and they're kind of cutting back a little bit of cost and the margins will come back. They went through the same thing in 2015 and 2016. If you go look at their net margins, I think they were 3 % in both those years. And then they came right back to like 5 % and 6%. Gambling.com group, the first thing they have to do is clean up their balance sheet.

26:27That'll take it two or three years. Once they clean up their balance sheet, their free cash flow will be able to buy back almost their entire float within one year. I mean, it's that cheap. And HIMSS, you know, I think is like a powder keg. I mean, I think it could be a very fun year.

26:44Raul Shah:Do you have price targets on these stocks? I think conservative speaking HIMSS is probably worth close to$100. I think UnitedHealthcare is worth around$550. And I think Gambling.com is worth about$1520. And that's based on my forecast of their free cash flows. I mean, reasonable minds can differ. But from my estimates, conservatively speaking, I think those are the fair values of those businesses. And if when it hits that, that's when you take profits and move into something else? Or how do you handle that? Yeah, at that point, you know, it's funny, fair values are, they change every second, right, in theory.

27:19And so, you know, you have to always reassess if, if in, let's say, two years, you know, I think stock ABC is worth 15 bucks, and it goes to 15 bucks, if they're expected to continue to grow, the fair value at that point could be 25, you know, or it could be 30, you know, it's not sort of set in stone like that. So it's on a sort of a case by case basis. If I think that, you know, they've, you know, conservatively, I don't think that they'll grow as fast and 15 is a fair price. I'll sell the stock that day. I'm not married to any stock and nor should anybody be.

27:48Raul Shah:I'm curious if you would speak a bit more about the broadly speaking, the health care industry, because like, as you mentioned, there's so many paradigm shifts afoot in that industry in particular. Kenny Ofontos is an analyst we've had on before, and he just wrote an article yesterday about AI being the secret factor to UnitedHealth's turnaround. AI is a huge thing in healthcare that we've had a few people on here talking about. What would you say about healthcare in general and why these two are so, I mean, I know you've spoken to it already, but why these two are so primed to take advantage of that?

28:24Well, you know, I think I read that article, by the way. I think I might have read it this morning. It was a good article. Oh, nice. Nice. You know, the healthcare industry is A, obviously very complicated. When I look at HIMSS and the space that they occupy in the healthcare industry, I'm thinking of friction points between like an individual patient and getting treatment. So you got to, you know, call the doctor. That's a friction point. You got to wait like a month, two months sometimes to get an appointment. You got to then drive all the way sit in the waiting room for an hour while the doctor, you know, is with other patients.

29:00And you go to the smaller waiting room, right? That's an old Seinfeld bit, right? You're in one waiting room, but then you get called in and you're still in a waiting room. Either you get seen, you come back, then you got to go to the pharmacy, come back, all this kind of stuff, right? There's like a dozen friction points. And when you've got a company that can come around and solve those, that's something to pay attention to. The healthcare industry has not been modernized. I mean, go open a CVS app or like an Amazon, you know, telehealth app. I mean, they look horrible. I mean, they look like, you know, like a middle school kid made some of those apps.

29:32So there's a big opportunity in the healthcare industry for technology, AI, to come in and really clean up house. You know, capitalism is a wonderful thing. The free market can take whatever binds that is given by the government, and they can go in and they can say, how can we make this more efficient? And it's a really wonderful thing to see. You've got so many regulations and different policies in terms of health insurance and as it pertains to UnitedHealthcare. At the end of the day, it's simply just a case of how do we make the margins lower and how do we make the revenue continue to grow.

30:10They'll do that over the next two or three years. I don't see insurance prices coming down. And part of that is the way insurance is structured. I mean, insurance covers, you know, regular routine care. You know, I sort of use an analogy. It's like auto insurance, it doesn't cover your gasoline. If it covered your gasoline, the price of gas would go through the roof because nobody would care. It would just be in your premium. You would just take cruises around the block all day long. You're not paying for the gas. So what difference does it mean? You'll just use it up. So when you have a system like that and you've got, you know, routine care covered by an insurance company, care, things that you don't even use, right?

30:49Things that the opposite gender of you might be utilizing, but not you, but it's still you're paying for it in your plan. You know, it's not easy to bring those costs down. That's my overall take. I mean, barring some sort of extreme regulatory change, I would imagine that, you know, it's really just up to companies to come in and implement tech and AI and just, you know, make the best do with the binds that they have.

31:12Raul Shah:And sticking to those two for a second, what would you say is most concerning to risk-wise? So I would say HIMSS, you know, anytime you have a company that's disrupting another company, you're going to wind up in situations where you push the envelope too far and you could get into regulatory trouble. HIMSS was going through that with the FDA and the DOJ. I think a lot of those risks have been mitigated, though. They got this new deal with Novo Nordisk to sell their Wegobe pill. It's been a wild week. I mean, NOAA went from suing them to partnering with them. You know, you're going to get a lot of that.

31:44You're going to get a lot of lawsuits and things like that when you're invested in HIMSS. UnitedHealthcare, you have to realize that a lot of their ability to succeed is out of their control. It depends what, you know, Medicare will pay, you know, for the contracted plans. I think they came out with a 0.9 % increase over last year, which is extremely low, and the stock had a huge sell-off because of that. So you're kind of at the mercy of the government. That's a big regulatory threat. I would say the biggest threats are just regulation and legislation, but the businesses themselves are cash-producing machines.

32:26Raul Shah:This isn't how you approach the markets, but I'm wondering if you would have any noteworthy things to say about the factors that the quant system looks at and like these these stocks are cells to hold, what would you say that you factor in the most when you're looking at a stock? And what would you say is the least important to you when you're when you're valuing these stocks? Yeah, I've noticed I've seen the quant system for a lot of these names. And, you know, I'll see like a strong sell for the quants. And it's funny, right next to it's like analyst recommendation and it's like strong buy. So that situation definitely, you know, can arise.

33:07I think in general, the way that I look at an investment, you know, if I see revenue going up every year, it's wonderful because revenue is just a proxy for demand. It doesn't matter how you chop it up. If you sell, you know, more of something at a lower price or less of something at a higher price, you know, revenue is demand. And if there's demand for your products, that's really step one. Revenue going down is a really bad sign. You also want to see a good balance sheet. You know, ideally you'd like to see a ton of cash and no debt. Talkspace was actually the second biggest position I had for the firm for clients for a big chunk of 2025.

33:43We bought it at an average cost basis of, I think,$2.81 at the firm level, one big block trade. The stock just got taken private at$5.25. Actually, that was a horrible price to sell it at. The company was worth a lot more than$5.25. That balance sheet was pristine. It was$92 million in cash, no debt. You don't see companies like that very often. Peter Lynch has an old joke which is that it's my surprise people, but if you don't have any debt it's really hard to go bankrupt. It's funny because it's such an obvious statement, but you want to have a good balance sheet because it's safety. You buy a stock that's got a horrible balance sheet, a ton of debt and no cash, you better pray to God they keep making a lot of money.

34:26So revenue growing, a lot of cash, not a lot of debt. Ideally, you'd like to see adjusted EPS going up every year, the earnings. I use adjusted because earnings per share is an accounting measure of profit. It's very different from free cash flow, which is a true measure, a cash measure of profit. Earnings per share is very manipulated by accounting. I don't mean like nefariously manipulated, but you have a lot of non-cash deductions. You have a lot of interest charges and other things like that that kind of warp your earnings per share that don't really tell you the full picture of your business.

35:01So adjusted EPS kind of backs out a lot of those things in one-time transactions that kind of makes it look a lot more smooth. So you want to see adjusted earnings per share going up every year. And if you just follow those four things, oh, and cash flow from operations, that's another big one, right? If you're looking at a business, you want to make sure that the actual underlying business, right, what do they do? Are the widgets that they're selling every year, are they becoming more efficient at that? And that's what the cash flow from operations will tell you. So I always tell people, look at those five things.

35:28If you've got a company that their revenue is going up every year, their earnings per share is going up every year, their balance sheet looks great, they've got a ton of cash, they don't have a lot of debt, and their cash flow from operations is going up every year, value that company, figure out what it's worth, and then look at what it's selling at, because you might have a wonderful, wonderful business on your hands. And those companies are extremely rare.

35:49Raul Shah:Gambling.com, I would ask the same question in terms of the industry. I mean, a ton of growth in that industry. What would you say about that? And then the biggest risks that you see there? Yeah, you know, I compare online gambling or gambling in general to, you know, vices like smoking. I mean, people have smoked for, you know, I don't know how long, you know, hundreds of thousands of years, maybe more, I don't know. And people will continue to smoke. And gambling is the same way, you know. I don't think there's really a strong correlation either between, you know, bad economies and gambling.

36:18I mean, people, if they're sitting at home, they don't have a job, they just can throw five bucks at something and they gamble, it's fun. So, you know, so gambling is not going anywhere. I would say that the biggest risk is their balance sheet. They have a lot of debt. They need to pay that down. They also have a lot of free cash flow every year. So it would take them two or three years to pay down their debt, and then they can start funneling that cash into buybacks. And, you know, so you get a little bit of a waiting period with that stock. But, you know, it's selling for like three, four bucks right now, and I think it's worth a lot more.

36:47So I think the risk reward is favorable. Normally I wouldn't go for a stock that's got a bad balance sheet like that. but this was kind of an exception. You got to know the rules and know when, so you know when to break them.

36:57Raul Shah:Yeah. To paraphrase Kenny Rogers, what would you, are there other names you like in the space? In the gambling.com space? Or sorry, in the gambling space? Yeah. That's how much you like that stock. Yeah, yeah, yeah. It's my whole world. Yeah, yeah. No, no, I haven't really looked too much beyond that stock. I mean, I've looked at some competitors just before I bought the company to make sure that it was good relative to everybody else but no other stock in the gambling.com space. I'm trying to think of anything that I'm watching. You know, I remember missing Meta when it was, you know, when it crashed like a few years ago.

37:32And I look back, I think that was the most obvious buy of all time. I didn't partake in that. I looked at Google, you know, last year and I was like, I almost pulled the trigger and I didn't. And hindsight, that was probably the most obvious buy of all time. Amazon is a very small position at the firm level. I kind of see a similar, you know, value add to some of those other mega caps that I just mentioned have. But I don't really have too many other major stocks on my watch list. It's a pretty overpriced market in general. I don't know how you feel about it, but a lot of stocks trading at very high prices relative to what they're worth.

38:03Raul Shah:Are your clients during times like this of speaking to the fear portion of things, there's a lot of fear right now. Are they wanting to get into energy names? Are there things like that that you're dealing with in times like this? Or are clients pretty well versed in what you're bringing to the table? And they are, you know, believers in that enough that they that they stick to it. Yeah, I'll tell you a story. Last year, around this same time, the market had a big correction. And, you know, on X, I follow a lot of other wealth managers in the space, and they were all sharing stories about how they had clients calling in and how they were basically telling them to stay calm and, you know, just relax.

38:45It's just, you know, par for the course, that kind of a thing. And, um, I didn't have any emails, uh, for many clients and I was so proud of them that I, I literally sent an email out to everybody, a mass email. And the subject line was, I said, I'm really proud of all of you. And I said, I follow a lot of other wealth managers in the space and they got, you know, people calling in and panicking and this and that. And I didn't have a soul reach out to me. Um, if you look at the price of hims and gambling.com over the last six months. There's been a lot of reasons to reach out to me and I haven't had any clients reach out to me.

39:16It's really a testament to their character. I think they're wonderful people and I think that they understand investing pretty well and I think communication is very important. I try to be very proactive about that so I make sure that I sit down with everybody. You can mitigate a lot of fears if you explain to someone what they own. If somebody does not know what they own, that's when they panic. But if you can show them the balance sheet, You show them the income statement. You walk through why you own the stock, and you tell them to be patient. That's all they need. The three cases, HIMSS, Gambling.com, UnitedHealthcare, their full year 2025 results and their Q4 results were pretty much as business as usual.

40:00Both HIMSS and Gambling.com sandbagged their guidance for 2025 or for 2026. HIMSS is the king of sandbagging. I know I've owned the stock since 2021. They used to, they don't, they're not as bad as they used to be. But, you know, when I owned the stock years past, I mean, they would just throw out these low ball targets, you know, that were like, so it works. You think that like, it might help you if you do that, like you throw out like a softball comp and then you crush it. But the problem is that if you train the market to think that, like they will notice that and then they will stop taking you seriously.

40:35And then if one day you don't crush those softball comps, you kind of get killed. But I was happy with all of their reports. I think that the businesses are doing fine. Business valuations don't change much on a quarter to quarter basis. The stock price will change every second, but the actual valuations don't really change that much. And I didn't see anything that made me think that the value of these companies was going down or that it was worth monumentally more than what I originally calculated in 2025.

41:02Raul Shah:What would you say are the filings that you pay the most attention to? Good question. I'll talk about my process and I'll weave in the filings that I pay attention to. I like to use, well, first of all, I use Seeking Alpha a lot. One of the things I like about Seeking Alpha is that I can actually go and I can check inside ownership very quickly. I can check the revenue growth. And I love Seeking Alpha for the transcripts. So every time the earnings come out, I know I can go online. I'll get the full transcript. I can just click right there, listen to it. I can listen to the car. I can do whatever I want and close my phone.

41:30Everything is good. But the transcripts are very important. And it's not just the first part where they talk about their business, but it's really also the analyst questions. You have to listen to the earnings call and not just once sometimes. Sometimes you've got to listen like three, four times and really like dig in. You don't need to read the entire 10K. I know some people are masochists and they like to do that, but you don't need to do that. You need to check the financials. You need to check the balance sheet, the income statement, the cash flow statement. You need to check that you're not being diluted like crazy.

42:04Very easy. You just check the shares. The weighted average share is outstanding. Do diluted, basic, whatever the heck you want. It doesn't matter. But if you can cover those things, the financials, the earnings call, and you do this every single quarter, you will have a very good knowledge of that business, and you will start to realize that investing is not as scary as it seems. And you'll start to learn that you won't pay as much attention to the stock price because you're looking at the company making all this cash, people don't realize that stocks will trade at their fair value. One of two ways.

42:40Either the market gives it a fair price, or you cannibalize your way to one. And what that means is that if you're the company, and you're producing so much cash flow, and the market is not buying your stock and giving you a fair multiple, you know what you're going to do? You're going to take that, and you're going to go buy back your shares. Look at AutoZone. AutoZone has retired exponential amount of shares since, say, over the last 20 years. They just keep buying back their stock. Every year, they have less shares outstanding than the year before. Go look at the stock price of AutoZone. It's through the roof.

43:15Exponential. It goes up every single year. Doesn't matter if nobody else buys the stock. If you have enough cash, you just buy the stock yourself. Doesn't matter.

43:22Raul Shah:I appreciate that. Rutwell, I appreciate this conversation. You're welcome back anytime. you have an open invitation. Again, you write under Seeking Alpha under Doc Shaw Financial. That's also the name of your firm. How can people get in touch with you? And if you'd care to share anything else that we left out of this conversation that you feel like we should include, happy for you to share that. Well, thank you for having me on again. It's always a pleasure. This is really the third time I've been on now. The first time was with Daniel in Austin, and now this is the second time with you. I started writing on Seeking Alpha in 2018, and I've loved it.

43:55It's been a great time and I'm going to continue to write on Seeking Alpha. If anybody wants to find me, just Google my name online. It's Raul Shah, R-A-U-L-S-H-A-H. It's the easiest way. The firm website is there. If you ever want to reach out to me and have your portfolio actively managed, just shoot me a contact form message. You want to follow me on X, it's just Raul underscore DSF. But if you Google me, all my stuff is there. Reach out anytime you want. Just a reminder, anything you hear on this podcast should not be considered investment advice. This is for entertainment purposes only, and you should seek advice from a licensed professional before investing.

44:29If you enjoyed the episode, leave a rating or review on your favorite podcasting app, and we'll see you soon with a new episode.