Medical Specialities company Acadia Healthcare is standing out today, surging to $79.91 and marking a 4.8% change. In comparison the S&P 500 moved only 1.0%. ACHC is -10.55% below its average analyst target price of $89.33, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Acadia Healthcare has underperfomed the S&P 500 by 21.9%, moving 5.2%.
Acadia Healthcare Company, Inc. provides behavioral healthcare services in the United States and Puerto Rico. The company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.
Acadia Healthcare does not release its trailing 12 month P/E ratio since its earnings per share of $-0.08 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for ACHC of -998.9. Based on the company's positive earnings guidance of $3.97, the stock has a forward P/E ratio of 20.1.
As of the second quarter of 2024, the average Price to Earnings (P/E) ratio for US health care companies is 27.61, and the S&P 500 has an average of 28.21. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
ACHC’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.
When we perform the calculation for Acadia Healthcare, we obtain a PEG ratio of 2.16, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.
Acadia Healthcare's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 462,340 | 424,133 | 38,207 | -54.74 |
| 2022 | 380,569 | 296,149 | 84,420 | -34.89 |
| 2021 | 374,477 | 244,811 | 129,666 | -70.11 |
| 2020 | 658,807 | 224,964 | 433,843 | 332.87 |
| 2019 | 332,904 | 232,679 | 100,225 | -37.71 |
| 2018 | 414,080 | 253,187 | 160,893 |
- Average free cash flow: $157.88 Million
- Average free cash flown growth rate: -21.8 %
- Coefficient of variability (lower numbers indicating more stability): 0.0 %
Free cash flow 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 a positive cash flow as of the last fiscal year, ACHC is in a position to do either -- which can encourage more investors to place their capital in the company.
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 has a P/B ratio of 2.48. This indicates that the market value of the company exceeds its book value by a factor of more than 2, but is still below the average P/B ratio of the Health Care sector, which stood at 3.69 as of the second quarter of 2024.
With a negative P/E ratio., a lower P/B ratio than its sector average, and positive cash flows with a downwards trend, we can conclude that Acadia Healthcare is probably overvalued at current prices. The stock presents poor growth indicators because of its with a negative growth trend, and no PEG ratio.
