Tenet Healthcare currently trades at $255.62 and has been a dream stock for shareholders. It’s returned 271% since October 2021, blowing past the S&P 500’s 76% gain. The company has also beaten the index over the past six months as its stock price is up 34.3% thanks to its solid quarterly results.
Is now still a good time to buy THC? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does Tenet Healthcare Spark Debate?
With a network spanning nine states and serving primarily urban and suburban communities, Tenet Healthcare (NYSE: THC) operates a nationwide network of hospitals, ambulatory surgery centers, and outpatient facilities providing acute care and specialty healthcare services.
Two Things to Like:
1. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Tenet Healthcare’s EPS grew at 18.6% compounded annual growth rate over the last five years, higher than its 2.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Tenet Healthcare’s margin expanded by 11.7 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Tenet Healthcare’s free cash flow margin for the trailing 12 months was 13.9%.
One Reason to Be Careful:
Same-Store Sales Falling Behind Peers
We can better understand Hospital Chains companies by analyzing their same-store sales. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Tenet Healthcare’s underlying demand characteristics.
Over the last two years, Tenet Healthcare’s same-store sales averaged 1.7% year-on-year growth. This performance was underwhelming and suggests it might have to change its strategy or pricing, which can disrupt operations. 
Final Judgment
Tenet Healthcare’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 12.4× forward P/E (or $255.62 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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