Select Medical Holdings (SEM) has been drawing attention after recent share moves, with the stock down about 7% over the past week and 13.6% over the past year, despite reports of positive annual revenue and net income growth.

The recent 1 day share price return of a 6.65% decline and 7 day share price return of an 8.36% decline suggest momentum has cooled, even though the 90 day share price return of 7.14% and 3 year total shareholder return of 6.47% indicate a more mixed longer term picture.

If this healthcare stock’s recent swings have you reassessing your watchlist, it could be a good moment to broaden your search with our screener of 27 healthcare AI stocks.

With annual revenue and net income growth reported alongside a value score of 3 and a share price that sits below the average analyst target, you have to ask: is SEM undervalued, or is the market already pricing in future growth?

Most Popular Narrative: 15.8% Undervalued

With Select Medical Holdings last closing at $15.01 and the most followed narrative pointing to a fair value of $17.83, the gap between price and story is clear and worth understanding in detail.

Policy and payer shifts toward value-based and cost-effective care settings favor Select Medical's post-acute and rehab offerings, potentially boosting occupancy rates and reducing earnings volatility as payers and hospitals increasingly steer patients to these lower-cost, high-quality care environments.

Want to see how a modest revenue build, fatter margins, and a very specific earnings multiple all work together to back that higher fair value? The narrative leans on detailed assumptions about how hospital partnerships, network expansion, and operating tweaks could feed into future cash generation. If you care about what assumptions need to hold for that $17.83 to make sense, the full story lays them out clearly.

Result: Fair Value of $17.83 (UNDERVALUED)

However, this story could change if regulatory pressure on Medicare reimbursement intensifies or if the company’s US$1.9b debt load starts to constrain its flexibility.

Another View: DCF Points the Other Way

The popular narrative leans on future earnings to argue Select Medical Holdings looks 15.8% undervalued around $15.01. Our DCF model comes to a very different conclusion, with an estimate of future cash flow value at $5.58 per share, which suggests the stock screens as overvalued on that basis.

If you want to see how those cash flow assumptions stack up, Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Select Medical Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 54 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With the story pulling in different directions, are you leaning more bullish or cautious on SEM, and how quickly do you want to firm up that view? You can weigh the potential upside against the issues investors are watching by reviewing 4 key rewards and 2 important warning signs.

Looking for more investment ideas?

If SEM has you questioning where your next opportunity might come from, do not wait on the sidelines while other investors line up their watchlists.

• Hunt for value with our list of 54 high quality undervalued stocks that combine quality fundamentals with prices that may not fully reflect their underlying strength.
• Build a sturdier core for your portfolio by scanning solid balance sheet and fundamentals stocks screener (43 results) that focus on companies with healthier financial footing.
• Spot opportunities others might be overlooking by checking our screener containing 23 high quality undiscovered gems that highlight high quality companies still off many radars.

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.