U.S. Physical Therapy currently trades at $65.04 per share and has shown little upside over the past six months, posting a small loss of 4.3%. The stock also fell short of the S&P 500’s 11.6% gain during that period.
Is now the time to buy U.S. Physical Therapy, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is U.S. Physical Therapy Not Exciting?
We don't have much confidence in U.S. Physical Therapy. Here are three reasons you should be careful with USPH and a stock we'd rather own.
1. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $795.5 million in revenue over the past 12 months, U.S. Physical Therapy is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
2. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
U.S. Physical Therapy’s flat EPS over the last five years was below its 13.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, U.S. Physical Therapy’s ROIC averaged 3.2 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
U.S. Physical Therapy isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 21.3× forward P/E (or $65.04 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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