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Is Now The Time To Look At Buying Select Medical Holdings Corporation (NYSE:SEM)?

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Simply Wall St
·3 min read
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Select Medical Holdings Corporation (NYSE:SEM), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Select Medical Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Select Medical Holdings

What's the opportunity in Select Medical Holdings?

Great news for investors – Select Medical Holdings is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Select Medical Holdings’s ratio of 17.91x is below its peer average of 29.77x, which indicates the stock is trading at a lower price compared to the Healthcare industry. However, given that Select Medical Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Select Medical Holdings?

earnings-and-revenue-growth
earnings-and-revenue-growth

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Select Medical Holdings' earnings over the next few years are expected to increase by 36%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Since SEM is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With an optimistic profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on SEM for a while, now might be the time to enter the stock. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy SEM. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed assessment.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, Select Medical Holdings has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you are no longer interested in Select Medical Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.