Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – Chemed Corporation. Looking at its size, financial health and track record, I believe there’s an opportunity with Chemed during these volatile times.
Check out our latest analysis for Chemed
Chemed Corporation provides hospice and palliative care services in the United States. Chemed was formed in 1970 and with the company’s market capitalisation at US$5.1b, we can put it in the mid-cap group. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
Currently Chemed has US$130m on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. Chemed generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 54.58x, which is well-above the minimum requirement of 3x. Moreover, its operating cash flows amply covers its total debt by 155%, which is higher than the bare minimum requirement of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means CHE is financially robust in the face of a volatile market.
CHE’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 12%, overtaking the market growth rate of 11%. It has also returned an ROE of 36% recently, above the industry return of 14%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Chemed as a long-term hold.
Next Steps:
Based on these three factors, CHE makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy CHE, I highly urge you to understand more about the company, in particular, in these following areas:- Future Outlook: What are well-informed industry analysts predicting for CHE’s future growth? Take a look at our free research report of analyst consensus for CHE’s outlook.
- Valuation: What is CHE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CHE is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.