A Fresh Look at Ensign Group’s (ENSG) Valuation After Raised Guidance on Strong Q3 Revenue Growth

The Ensign Group (ENSG) just announced an increase to its full-year earnings and revenue guidance, prompted by a third-quarter revenue jump of nearly 20 percent year over year. This comes as recent facility acquisitions and rising occupancy boost growth prospects.

See our latest analysis for Ensign Group.

Ensign’s series of acquisitions, rising occupancy, and solid quarterly results have fueled momentum in the share price. The 90-day share price return stands at 13.9 percent and total shareholder return has topped 23 percent over the past year. Over the longer run, Ensign’s stellar five-year total shareholder return approaching 188 percent sets it apart as one of the healthcare industry’s consistent long-term outperformers.

If you’re looking to broaden your perspective after Ensign’s latest move, now is the perfect time to discover See the full list for free.

With shares trading just below analyst targets and another round of upbeat guidance, the critical question now is whether Ensign’s robust growth is fully factored into the stock price or if a new buying opportunity is emerging.

Price-to-Earnings of 32.1x: Is it justified?

Ensign Group currently trades at a price-to-earnings (P/E) ratio of 32.1x, substantially higher than both its industry peers and what some models consider a fair level. With a recent closing price of $182.91, the stock’s P/E puts it well above the US Healthcare industry average of 21.5x and a peer average of 15.3x. This premium valuation demands a closer look at what investors may be pricing in for future growth and profitability.

The P/E ratio measures what the market is willing to pay today for a dollar of anticipated earnings. For a company like Ensign operating in healthcare, a sector known for defensive qualities and recurring revenues, higher multiples can reflect robust growth expectations or superior profit dynamics compared to industry norms.

Yet, Ensign’s P/E is also above the estimated fair Price-to-Earnings Ratio of 24.3x. This signals that the market is currently assigning a premium that outpaces not only industry averages but fair value calculations as well. This positions Ensign as a stock pricing in continued momentum and strong underlying performance, but also heightens the need for future results to justify current optimism.

Explore the SWS fair ratio for Ensign Group

Result: Price-to-Earnings of 32.1x (OVERVALUED)

However, slower revenue growth or margin compression could challenge Ensign’s premium valuation and lead investors to re-evaluate its future outlook.

Find out about the key risks to this Ensign Group narrative.

Another View: What Does the SWS DCF Model Suggest?

Looking at Ensign Group through the lens of our DCF model, the story shifts. The SWS DCF model currently estimates fair value at $207.18, about 11.7 percent above the current share price. This means the stock is considered undervalued, in sharp contrast to the premium indicated by the P/E ratio. If one method signals overvaluation and another suggests a discount, which side will reality favor as growth plays out?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Ensign Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 849 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Ensign Group Narrative

If you have a different perspective or want to dig deeper into Ensign’s numbers, you can craft your own take in just a few minutes. Do it your way

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Ensign Group.

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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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