Shares of Acadia Healthcare Company Fall -8.95%. Here's What You Need to Know.

Standing out among the Street's worst performers today is Acadia Healthcare Company, an outpatient facilities company whose shares slumped to a price of $73.29, 22.58% below its average analyst target price of $94.67.

The average analyst rating for the stock is buy. ACHC underperformed the S&P 500 index by -8.84% during today's morning session, but outpaced it by 49.45% over the last year with a return of 41.93%.

Acadia Healthcare Company, Inc. develops and operates inpatient psychiatric facilities, residential treatment centers, group homes, substance abuse facilities, and outpatient behavioral health facilities to serve the behavioral health and recovery needs of the communities in the United States. The company belongs to the basic materials sector, which includes the chemical, coal, mining, aluminum, and steel industries. The demand for these materials is dependent on economic cycles: when the economy is growing, companies across all sectors ramp up production, which increases demand from basic materials companies.

Conversely, when the economy slows down, demand for these materials decreases. The stock prices of this sector tend to follow the ebbs and flows of these demand cycles — but accurately predicting where we are presently in the economic cycle is a matter of intense debate.

Acadia Healthcare Company's trailing 12 month P/E ratio is 24.3, based on its trailing EPS of $3.07. The company has a forward P/E ratio of 20 according to its forward EPS of $3.68 — which is an estimate of what its earnings will look like in the next quarter. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US basic materials companies is 10.03, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.

Acadia Healthcare Company's PEG ratio of 1.32 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.

To understand a company's long term business prospects, we must consider its gross profit margins, which is the ratio of its gross profits to its revenues. A wider gross profit margin indicates that a company may have a competitive advantage, as it is free to keep its product prices high relative to their cost. After looking at its annual reports, we obtained the following information on ACHC's margins:

Date Reported Revenue (k) Cost of Revenue (k) Gross Margin YoY Growth
2021-12-31 $2,212,751 $1,500,255 32.2% 6.83%
2020-12-31 $1,957,410 $1,367,517 30.14% 3.68%
2019-12-31 $2,920,368 $2,071,307 29.07% 53.16%
2018-12-31 $2,825,217 $2,289,005 18.98% -77.98%
2017-12-31 $2,700,417 $372,825 86.19% n/a
  • Average gross margin: 39.32 %
  • Average gross margin growth rate: -2.86 %
  • Coefficient of variability (higher numbers indicating more instability): 68 %

We can see from the above that Acadia Healthcare Company business is not strong and its stock is likely not suitable for conservative investors.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Acadia Healthcare Company was $129,666,000.00 as of its last annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, ACHC is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 134.13% and has on average been $163,619,600.00.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Acadia healthcare company's P/B ratio is 2.826 -- in other words, the market value of the company exceeds its book value by a factor of more than 2, so the company's assets may be overvalued compared to the average P/B ratio of the Basic Materials sector, which stands at 2.08 as of the first quarter of 2023.

Since it has an inflated P/E ratio, an average P/B ratio, and an irregular stream of positive cash flows with an upwards trend, Acadia Healthcare Company is likely overvalued at today's prices. The company has poor growth indicators because of its inconsistent operating margins with a negative growth trend. We hope you enjoyed this overview of ACHC's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.