Tenet Healthcare currently trades at $161.00 and has been a dream stock for shareholders. It’s returned 510% since August 2020, blowing past the S&P 500’s 92.2% gain. The company has also beaten the index over the past six months as its stock price is up 11.3% thanks to its solid quarterly results.

Is now still a good time to buy THC? Or are investors being too optimistic? Find out in our full research report, it’s free.

Why Does Tenet Healthcare Spark Debate?

With a network spanning nine states and serving primarily urban and suburban communities, Tenet Healthcare (NYSE: THC) operates a nationwide network of hospitals, ambulatory surgery centers, and outpatient facilities providing acute care and specialty healthcare services.

Two Positive Attributes:

1. Outstanding Long-Term EPS Growth

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.

Tenet Healthcare’s EPS grew at an astounding 29.1% compounded annual growth rate over the last five years, higher than its 3.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

2. New Investments Bear Fruit as ROIC Jumps

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).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Tenet Healthcare’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

One Reason to be Careful:

Same-Store Sales Falling Behind Peers

Investors interested in Hospital Chains companies should track same-store sales in addition to reported revenue. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Tenet Healthcare’s underlying demand characteristics.

Over the last two years, Tenet Healthcare’s same-store sales averaged 1.7% year-on-year growth. This performance was underwhelming and suggests it might have to change its strategy or pricing, which can disrupt operations.

Final Judgment

Tenet Healthcare’s merits more than compensate for its flaws, and with its shares topping the market in recent months, the stock trades at 12.4× forward P/E (or $161.00 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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