What Recent Returns Say About Encompass Health (EHC)

Encompass Health (EHC) has drawn attention after a period of mixed share performance, with a 1 day slip, a roughly 6% decline over the past week and a steeper drop over the past 3 months.

At the same time, the stock shows a 1 year total return of about 8% and a 3 year total return of around 67%, while the 5 year total return is near 54%, giving investors a broad set of reference points.

Recent share price returns, including a 1 day slip and a roughly 19% 3 month share price decline from around $100, suggest momentum has cooled even as the 1 year total shareholder return remains positive. This may hint at a reassessment of growth prospects and risk.

If you are weighing Encompass Health against other opportunities in the sector, it could be useful to see how it compares with broader US healthcare stocks.

Given the recent share price weakness, the ongoing growth in revenue and net income, and some indicators suggesting the shares trade below certain estimates of value, is there a genuine opportunity here, or is the market already pricing in future growth?

Most Popular Narrative: 28.6% Undervalued

With Encompass Health last closing at $100.22 against a narrative fair value of about $140.33, the valuation gap centers on sustained growth and profitability assumptions.

The surge in the 65 plus population and persistent undersupply of inpatient rehabilitation beds are driving high and still unmet demand for Encompass Health's core services; ongoing hospital openings and bed expansions position the company to capture significant incremental patient volume, supporting higher revenue growth for years to come. Growth in admissions from complex neurological, stroke, and brain injury cases, closely linked to rising chronic disease prevalence, reinforces Encompass Health's outperformance in medically complex care, which differentiates it from competitors and should bolster both top-line and margins through payer mix improvement and potentially higher reimbursement rates.

Curious what sits behind that valuation gap? The narrative leans on steady revenue growth, firmer margins, and a future earnings multiple that assumes confidence in those cash flows.

Result: Fair Value of $140.33 (UNDERVALUED)

However, this depends on tight labor conditions and heavy spending on new facilities not eroding margins or leaving Encompass Health with underused beds.

Build Your Own Encompass Health Narrative

If this view does not quite fit how you see Encompass Health and you prefer to test the assumptions yourself, you can build a custom thesis in just a few minutes with Do it your way.

A great starting point for your Encompass Health research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision.

Looking For More Investment Ideas?

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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.