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Hello Fellow Apes,
I thought about this post because someone made a post about "fair value" and there were many responses saying it was subjective. I don't agree with that because being subjective really failed the idea of having set rules for yourself when it comes to investing.
With that said, I offer another alternative. You should start using p/s instead of p/e. P/S is a really useful metric to use when you think the economy is heading into a recession. Please keep in mind that I am saying this from a healthcare perspective because that is my expertise. Why P/S? well it is because in a recession, earnings become garbage, and P/E turns into a trap.
You can disagree, but I think we are in a recession.
The thing with a recession is that it destroys the usefulness of p/e. In a downturn, net income collapses fast because utilization spikes due to healthcare costs jumping. There are reimbursement lags, and the bad debts will start to rise. Layoffs will increase enrollment churn, and one-time charges will explode amid margin compression across the board. If this sounds familiar to you, it is because you have probably been seeing it on all of the recent healthcare earnings. This is why I love healthcare, it is predictable.
So if earnings falls off a cliff, the stock suddenly looked "cheap" at 10x becomes "expensive" at 40x overnight or earnings go negative and the P/E becomes meaningless. P/E is backward-looking and fragile. In recessions, companies don’t lose sales as fast as they lose profits because sale usually decline slowly. Profits can drop 50–100% in a single year. Therefore, P/S gives you a more stable anchor. What you are really asking is
"What am I paying for the business’s actual scale, not the temporarily destroyed margin?"
In a recession, the market very often misprices survivors. The market starts throwing everything into the “bankruptcy bucket.” Even companies that are not close to dying get priced like they are. The p/s will help you spot these companies. For example, if a company is still doing $2b+ revenue, and it is trades at a 0.5x sales, the market is basically saying, "This business is worth almost nothing." This recession fear is not reality.
This is your motherfucking value investing.
Why? It's because in a recession, margins are the most volatile part of the model. P/S ignores margin temporarily and asks the important questions. Does this company still have customers? Does it still have volume? Will margins normalize later? That’s exactly how you evaluate healthcare insurers and providers during stress. It helps separate “temporary pain” from “permanent impairment," and P/E can’t do that in recessions because earnings get obliterated.
Have you noticed how every company is experiencing margin compression with their recent earnings?
With that said, if you want to know what this look like, check out the posts below for MOH and CNC
[https://www.reddit.com/r/Healthcare\_Anon/comments/1ofexaz/molina\_q3\_2025\_earnings\_analysis\_preliminary/](https://www.reddit.com/r/Healthcare_Anon/comments/1ofexaz/molina_q3_2025_earnings_analysis_preliminary/)
[https://www.reddit.com/r/Healthcare\_Anon/comments/1ghgl0z/centene\_q3\_2024\_earnings\_analysis\_earnings/](https://www.reddit.com/r/Healthcare_Anon/comments/1ghgl0z/centene_q3_2024_earnings_analysis_earnings/)
The real insight is in the Excel. We’ve been tracking these companies for years, breaking down profitability on a per-member basis across different cohorts. That kind of analysis is far more meaningful than relying on surface-level valuation metrics like P/S. Price-to-sales is useful, but it’s really just a starting point; the deeper value comes from understanding how efficiently these businesses generate profit from their actual member base over time.
I hope you all find this as interesting, and it helps you start your investing journey DD. Also if CNC drop tomorrow morning, I want to give credit to my friend moocao for calling it.