Stock Analysis

Does Tenet Healthcare (NYSE:THC) Deserve A Spot On Your Watchlist?

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NYSE:THC
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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Tenet Healthcare (NYSE:THC). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Tenet Healthcare

How Fast Is Tenet Healthcare Growing Its Earnings Per Share?

Over the last three years, Tenet Healthcare has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, Tenet Healthcare's EPS shot from US$3.80 to US$8.38, over the last year. Year on year growth of 121% is certainly a sight to behold.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Tenet Healthcare shareholders can take confidence from the fact that EBIT margins are up from 8.9% to 13%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NYSE:THC Earnings and Revenue History April 15th 2022

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Tenet Healthcare's forecast profits?

Are Tenet Healthcare Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$9.3b company like Tenet Healthcare. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$107m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Is Tenet Healthcare Worth Keeping An Eye On?

Tenet Healthcare's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it's worth considering Tenet Healthcare for a spot on your watchlist. You should always think about risks though. Case in point, we've spotted 3 warning signs for Tenet Healthcare you should be aware of, and 1 of them is a bit unpleasant.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

What are the risks and opportunities for Tenet Healthcare?

Tenet Healthcare Corporation operates as a diversified healthcare services company.

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Rewards

  • Trading at 23.2% below our estimate of its fair value

  • Earnings are forecast to grow 15.44% per year

Risks

  • Interest payments are not well covered by earnings

  • Significant insider selling over the past 3 months

  • Profit margins (2.9%) are lower than last year (5.5%)

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