Ensign Group (ENSG): Evaluating Valuation After Strong Shareholder Returns and Growth Momentum

Ensign Group (ENSG) shares have delivered a strong run over the past year, climbing almost 17%. Investors are increasingly watching its consistent growth in revenue and net income, which continue to set it apart in the healthcare sector.

See our latest analysis for Ensign Group.

Momentum around Ensign Group has clearly been building, with its 30-day share price return of 6.5% and a year-to-date surge of 37.5% catching investor attention. Long-term holders have seen impressive results as well, with a total shareholder return of 17.3% over the last year and more than doubling their money over three years.

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But with shares nearing analyst price targets and robust growth already on display, the key question for investors becomes clear: is Ensign Group undervalued at these levels, or is the market already pricing in its future potential?

Price-to-Earnings of 32.4x: Is it justified?

Ensign Group trades at a Price-to-Earnings (PE) ratio of 32.4x, placing it well above both the US Healthcare industry average of 21.7x and the peer average of 15.9x. At a last close of $182.7, this premium hints that investors expect robust future growth or exceptional business quality.

The Price-to-Earnings ratio measures the price investors are willing to pay today for each dollar of earnings generated by the company. In sectors like healthcare, where predictable earnings can command higher multiples, the PE ratio serves as a pulse-check on market sentiment and profit growth expectations.

Ensign's elevated multiple is difficult to overlook. While its recent earnings growth is impressive, the current valuation leaves little room for disappointment. Compared to industry averages, this level sets a high bar and could signal that enthusiasm is running ahead of fundamentals. Notably, the estimated fair PE ratio of 23x suggests a possible reset in expectations should growth slow.

Explore the SWS fair ratio for Ensign Group

Result: Price-to-Earnings of 32.4x (OVERVALUED)

However, slowing revenue growth or any earnings miss could quickly challenge the premium valuation currently enjoyed by Ensign Group shares.

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

Another View: Discounted Cash Flow Model

Taking a different approach, our SWS DCF model estimates Ensign Group’s fair value at $165.07. This suggests the shares may be trading above their intrinsic worth. This perspective challenges the premium indicated by the high earnings multiple. Could growth expectations be a step ahead of real value?

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 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 our assessment doesn't fit your view, or you want to dig deeper using your own research, you can easily shape your own narrative in just a few minutes with Do it your way

A good starting point is our analysis highlighting 2 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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