Brookdale Senior Living Inc (NYSE:BKD), a US$1.77B small-cap, is a healthcare company operating in an industry, which faces key trends such as rising demand fuelled by an aging population and the growing prevalence of chronic diseases. Furthermore, the challenges facing the healthcare providers in particular, are complex and interrelated. Shifting towards higher collaboration and data-driven approaches may improve outcomes and lower cost, by addressing behavioural and physical health issues of chronic illness and aging patients. Healthcare analysts are forecasting for the entire industry, a strong double-digit growth of 11.07% in the upcoming year , and a low 1.37% growth over the next couple of years. This rate is below the growth rate of the US stock market as a whole. Should your portfolio be overweight in the healthcare sector at the moment? In this article, I’ll take you through the sector growth expectations, and also determine whether Brookdale Senior Living is a laggard or leader relative to its healthcare sector peers. Check out our latest analysis for Brookdale Senior Living
What’s the catalyst for Brookdale Senior Living’s sector growth?
Providers that are finding it harder to profit from further cost and operational efficiencies after picking the low-hanging fruit are beginning to turn their attention to more transformative initiatives to bend the cost curve. In the previous year, the industry saw growth of 8.64%, though still underperforming the wider US stock market. Brookdale Senior Living lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its healthcare provider peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 69.62% in the upcoming year. This future growth may make Brookdale Senior Living a more expensive stock relative to its peers.
Is Brookdale Senior Living and the sector relatively cheap?
The healthcare industry is trading at a PE ratio of 21.18x, relatively similar to the rest of the US stock market PE of 18.79x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 11.55% on equities compared to the market’s 10.48%. Since Brookdale Senior Living’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Brookdale Senior Living’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Brookdale Senior Living’s industry-beating future is a positive for investors. If Brookdale Senior Living has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the healthcare provider industry. However, before you make a decision on the stock, I suggest you look at Brookdale Senior Living’s fundamentals in order to build a holistic investment thesis.
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Historical Track Record: What has BKD’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Brookdale Senior Living? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!