AHCO - AdaptHealth Is Too Strong To Be Valued At 40% Of Revenues

2024-05-10 13:08:33 ET

Summary

• AdaptHealth came public in 2019 through a SPAC merger and has been in the penalty box as other SPACS crashed the past 2 years.
• Yet earnings are growing rapidly and revenues are also steadily growing.
• Earnings strength has been masked by non-recurring items related to mergers and goodwill write-offs and management not showing an adjusted EPS.
• AdaptHealth is too substantial a company to be trading at 0.4x revenues.

In the past couple of years, there has been a major bust going on of stocks of companies that came public through SPACs in the 2018-2021 time period. The vast majority of the SPAC deals have struggled, and it has tainted the whole segment. But there are always those who not only survive, but thrive. AdaptHealth ( AHCO ) is such a case. It is a rollup that initially struggled with digesting all of its acquisitions. The mergers have stopped, and the company has made remarkable progress in improving earnings. This has been masked by a lot of non-recurring items, so it hasn’t been apparent to the market. But AdaptHealth is the largest in its industry in its largest segment, by a wide margin. The company has the market position to settle into a solidly profitable, steadily growing investment.

The chart below shows the stock price since the SPAC merger in 2019.

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