AdaptHealth has had an impressive run over the past six months as its shares have beaten the S&P 500 by 12.6%. The stock now trades at $10.46, marking a 26% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in AdaptHealth, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Is AdaptHealth Not Exciting?
Despite the momentum, we're cautious about AdaptHealth. Here are three reasons there are better opportunities than AHCO and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. AdaptHealth’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.1% over the last two years was well below its five-year trend. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for AdaptHealth, its EPS declined by 1.3% annually over the last five years while its revenue grew by 30.6%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
AdaptHealth historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.3%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
Final Judgment
AdaptHealth isn’t a terrible business, but it doesn’t pass our bar. With its shares outperforming the market lately, the stock trades at 11.6× forward P/E (or $10.46 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
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