Encompass Health 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 15.7% to $124.41 per share while the index has gained 13.5%.
Is now the time to buy EHC? Find out in our full research report, it’s free.
Why Does Encompass Health Spark Debate?
With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE: EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.
Two Things to Like:
1. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Encompass Health’s margin expanded by 3.4 percentage points over the last five years. This is encouraging because it gives the company more optionality. Encompass Health’s free cash flow margin for the trailing 12 months was 12.6%.
2. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Encompass Health’s five-year average ROIC was 15.8%, beating other healthcare companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.
One Reason to Be Careful:
Same-Store Sales Falling Behind Peers
In addition to reported revenue, same-store sales are a useful data point for analyzing Outpatient & Specialty Care companies. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Encompass Health’s underlying demand characteristics.
Over the last two years, Encompass Health’s same-store sales averaged 4% year-on-year growth. This performance slightly lagged the sector and suggests it might have to change its strategy or pricing, which can disrupt operations. 
Final Judgment
Encompass Health’s positive characteristics outweigh the negatives. At $124.41 per share (or 19.4× forward P/E), is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More Than Encompass Health
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