Public health insurance is a fast-growing business. The number of people enrolled in Medicaid and the Children’s Health Insurance Program has soared 19% to nearly 70 million since the Affordable Care Act (ACA) went into effect in 2013.

This group of new enrollees, which represents more than 20% of the U.S. population, qualifies for public health insurance by meeting ACA requirements for annual household incomes that are less than 138% of federally-defined poverty levels (an annual salary of $11,770 for an individual and $24,250 for a family of four).

Although highly controversial, the advent of government-sponsored health insurance has been a boon to firms involved in delivering health benefits. Analysts are especially high on managed care provider Molina Healthcare, Inc. (NYSE: MOH). Molina is not a well-known stock, but is clearly gaining a following these days.

Following recent share price gains, investors may think they’ve missed the boat, but that’s not the case. Molina’s focus on providing healthcare to those receiving government assistance makes it a key beneficiary of public healthcare’s rapid expansion and a solid bet to outperform again this year. 

Molina’s recent operating trends are quite impressive: the company now insures more than 2.6 million people, which is a 36% gain since the ACA went into effect. This included 385,000 new Medicaid enrollees and 207,000 more participants in the Children’s Health Insurance Program and Temporary Assistance for Needy Families. The latter is a state program providing cash assistance and other support services for low-income families with children under age 18.

In California, Molina’s largest market, health plan membership jumped 44% last year to 531,000. Membership rose by 23% to 497,000 in the firm’s number two market, Washington, and by 36% to 347,000 in its third-largest market, Ohio.

That sets the stage for solid growth this year. Management anticipates revenue of $14.3 billion and earnings per share of $2.35, projected improvements of 47% and 82%, respectively. Analysts’ forecasts are even slightly above that guidance.

Looking ahead, nationwide Medicaid enrollment is projected to climb by roughly two million annually through 2020. For Molina, this should conservatively translate to roughly 160,000 new Medicaid customers per year during that time, assuming the firm’s share of the Medicaid market remains static at about 8%. I doubt it will, though, because Molina has a strong track record of existing contract renewals and regularly generates new business, too.

In December, for example, management inked a deal to administer Medicaid-funded government health benefits in the eastern and southwestern regions of the commonwealth of Puerto Rico. Molina will begin enrolling new members under this contract on April 1, with total expected enrollment of 350,000 and projected annual revenues of $750 million.

After commencing in January 2014, the firm’s South Carolina Medicaid managed care program finished the year with 118,000 enrollees and annual premium revenue of more than $381 million.

Molina is also gaining market share through acquisitions, spending more than $300 million on mergers and acquisitions during the past five years. Among its latest deals:

The December 2013 purchase of a contract to service 80,000 Medicaid recipients from the Lovelace Health Plan of New Mexico; an August 2014 acquisition  an 11,500-member Medicaid business from Florida-based HMO Healthy Palm Beaches; a December 2014 acquisition of 65,500 Medicaid members from First Coast Advantage, LLC, a health insurer affiliated with the University of Florida Jacksonville.

#-ad_banner-#While clearly a strength, Molina’s public healthcare focus also presents certain cost challenges. Specifically, investors should monitor the firm’s medical care ratio, a key managed care profitability metric comparing payouts for medical care to premium revenue.

Although the medical care ratio is subject to certain minimums under the Affordable Care Act, you typically want it well below 100%. This means the company is collecting substantially more in premiums than it’s paying out to cover medical costs.

Molina projects a medical care ratio of 90% this year, the same as the past two years. Although this indicates expectations for solid profitability, it’s at the top end of what the company typically achieved during the past five years, when MCR’s ranged as low as 86.8%.

That figure has been trending higher lately because of reimbursement delays in California and several other states, as well as faster-than-expected increases in medical costs in Molina’s markets. Moreover, Molina’s insured base of patients often need nursing home or other types of very costly long-term care.

Molina’s medical cost ratio isn’t cause for concern at this point. However, profit margins — typically thin to begin with — could suffer if the ratio is consistently above 90%. At current levels, the company remains poised for the exceptional profit growth both management and analysts project.

Risks To Consider: The Affordable Care Act is under constant assault by opponents who would like to see the law scaled back or even repealed. As my colleague Ian Floyd recently pointed out, the fate of the law — and in turn the healthcare industry — currently rests on the outcome of King v. Burwell, a Supreme Court case that commenced on March 4. Depending on what the high court decides, as many as 10 million people could lose the coverage they obtained under the ACA. This would certainly hurt Molina, which is growing so quickly because of the law.

Action To Take –> Investors won’t have to wait long for the outcome of King v. Burwell, which should be decided by May or June. Monitor Molina’s stock until then and be ready to buy quickly. The price is apt to pop if the decision goes against ACA opponents. Ongoing steady business gains should help this stock to rise 60% in coming years.

Molina has sustained upward momentum, which could qualify it for StreetAuthority’s Maximum Profit system. It flags exactly which stocks are about to jump double, even triple digits in the coming days, weeks and months. In fact, academic studies have shown that momentum is one of the only indicators that has consistently outperformed the market. So far, the Maximum Profit is making a small group of investors a lot of money. The system recently tagged a few more stocks that could do the same. To learn more, click here.