Is There Now An Opportunity In Encompass Health Corporation (NYSE:EHC)?

Encompass Health Corporation (NYSE:EHC), might not be a large cap stock, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$71.81 and falling to the lows of US$60.63. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Encompass Health's current trading price of US$64.94 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Encompass Health’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Encompass Health

Is Encompass Health Still Cheap?

According to my valuation model, the stock is currently overvalued by about 28%, trading at US$64.94 compared to my intrinsic value of $50.55. This means that the buying opportunity has probably disappeared for now. Furthermore, Encompass Health’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What kind of growth will Encompass Health generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by a double-digit 12% over the next couple of years, the outlook is positive for Encompass Health. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in EHC’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe EHC should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on EHC for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for EHC, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Encompass Health as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Encompass Health, and understanding this should be part of your investment process.

If you are no longer interested in Encompass Health, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.