Encompass Health Corporation (NYSE:EHC), is not the largest company out there, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$57.39 and falling to the lows of US$45.23. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Encompass Health's current trading price of US$45.23 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Encompass Health’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What Is Encompass Health Worth?
According to my valuation model, Encompass Health seems to be fairly priced at around 13.69% above my intrinsic value, which means if you buy Encompass Health today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth $39.79, then there isn’t really any room for the share price grow beyond what it’s currently trading. In addition to this, Encompass Health has a low beta, which suggests its share price is less volatile than the wider market.
What kind of growth will Encompass Health generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Encompass Health, it is expected to deliver a relatively unexciting earnings growth of 2.9%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What This Means For You
Are you a shareholder? EHC’s future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on EHC, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Encompass Health at this point in time. Every company has risks, and we've spotted 1 warning sign for Encompass Health you should know about.
If you are no longer interested in Encompass Health, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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