Chemed trades at $513.71 and has moved in lockstep with the market. Its shares have returned 13.3% over the last six months while the S&P 500 has gained 8.4%.
Is there a buying opportunity in Chemed, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Chemed Not Exciting?
We’re swiping left on Chemed for now. Here are three reasons why there are better opportunities than CHE, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Chemed’s sales grew at a tepid 4% compounded annual growth rate over the last five years. This was below our standard for the healthcare sector.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Chemed’s unimpressive 2.8% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, Chemed’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Chemed isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 20.5× forward P/E (or $513.71 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Chemed
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