AMN Healthcare Services has been on fire lately. In the past six months alone, the company’s stock price has rocketed 113%, setting a new 52-week high of $33.29 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy AMN Healthcare Services, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think AMN Healthcare Services Will Underperform?
We’re happy investors have made money, but we’re sitting this one out for now. Here are three reasons we avoid AMN, plus one stock we’d rather own.
1. Demand Slips as Sales Volumes Slide
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Specialized Medical & Nursing Services company because there’s a ceiling to what customers will pay.
AMN Healthcare Services’s travelers on assignment came in at 9,227 in the latest quarter, and they averaged 11.5% year-on-year declines over the last two years. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests AMN Healthcare Services might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. EPS Trending Down
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.
Sadly for AMN Healthcare Services, its EPS declined by 7.1% annually over the last five years while its revenue grew by 5%. 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
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Unfortunately, AMN Healthcare Services’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
AMN Healthcare Services falls short of our quality standards. After the recent surge, the stock trades at 42.5× forward P/E (or $33.29 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at the Amazon and PayPal of Latin America.
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