Addus HomeCare has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 20.4% to $121.63 per share while the index has gained 22.9%.
Is there a buying opportunity in Addus HomeCare, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Is Addus HomeCare Not Exciting?
We're cautious about Addus HomeCare. Here is one reason we avoid ADUS and a stock we'd rather own.
Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $1.27 billion in revenue over the past 12 months, Addus HomeCare is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
Final Judgment
Addus HomeCare isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 18.7× forward P/E (or $121.63 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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