We recently published a list of the 12 Most Oversold Healthcare Stocks to Buy Now. In this article, we are going to take a look at where Acadia Healthcare Company, Inc. (NASDAQ:ACHC) stands against other most oversold healthcare stocks to buy now.
Are Healthcare Costs Rising in the US?
Healthcare costs and spending have been rising in the US. The Centers for Medicare & Medicaid Services reported that healthcare spending in the US reached $4.9 trillion in 2023, up 7.5% from 2022. The healthcare sector accounted for around 17.6% of the US economy in 2023, reflecting a 17.4% rise from 2022. The two primary drivers of this growth are the rise in private health insurance and Medicare.
READ ALSO: 10 Best Performing Healthcare Stocks So Far in 2025 and 10 Most Undervalued Small-Cap Stocks To Invest In.
What Could Trump’s Tariffs Mean for the Healthcare Industry
Since more and more companies in the US are looking towards China for deals regarding the next promising molecule, whether in the obesity or cancer space, the impact of tariffs on this ongoing trend has become a subject of significant discussion in the healthcare industry. On February 7, Carlo Rizzuto, Versant Ventures managing director, appeared on CNBC’s ‘Fast Money’ to discuss the impact of tariffs on healthcare. Rizzuto believed that there are two ways in which tariffs could impact the industry. The first would be products innovated in China and brought over to the US or other markets. To understand how the tariffs would affect such trade processes, the industry would have to see how the tariffs are actually structured in the market.
Secondly and more tangibly, China is a massive center for contract research and manufacturing for the US healthcare industry. Therefore, anything that increases that cost is likely to make the market conditions more challenging. The healthcare industry is already under pressure in terms of investor sentiment, and an increase in cost is not going to help its functioning.
China and the US Healthcare Sector: What’s the Connection?
Talking about the immense role played by China in the pharma and healthcare space, Rizzuto said that a significant majority of healthcare companies are using a Chinese CRO or manufacturing partner in some way in the R&D process. It is thus a very significant part of how biotech or pharma companies operate in the country. This trend is widely prevalent, going from the smallest companies to the largest.
Simply speaking, it is not possible for healthcare companies to reshore all of the externalized R&D and manufacturing to the US, as the country does not have enough capacity to accommodate the transfer. It is thus very difficult to imagine how a reshoring of such magnitude could take place. The costs to undertake this feat can be calculated linearly with the amount of tariffs applied.
Delving deeper into the industry dynamics, Rizzuto termed the obesity space and, more broadly, the cardiometabolic domain as the single largest value-creation opportunity in the industry’s history. In a recently published article on 10 Best Drug Stocks to Buy Now, we discussed whether China is the next big thing in the pharmaceutical industry. Here is an excerpt from the article:
“Large American pharmaceutical companies are showing a distinct trend never seen before: they are increasingly looking for medicines in China. According to data from DealForma, as reported by CNBC, around 30% of Big Pharma deals with at least $50 million upfront in 2024 included Chinese companies. This was up from 20% the year before and almost 0% only five years prior. The surge in China deals is materializing when US policymakers and President Donald Trump are pursuing protectionist policies in technology, such as semiconductors and AI.
Various reasons are being attributed to this trend. Experts believe that Chinese companies are developing more effective molecules than ever before, that too in large quantities. They are in a position to begin testing these molecules on human subjects quicker and at a lower price than the US. Buyers have devised a business model allowing them to essentially import the medicines through licensing deals, according to CNBC. Biotech companies are further pushed into making these deals due to the drying up of venture funding in China.
Despite varying opinions among experts, there is an industry-wide consensus that this unique trend is here to stay. How this trend might affect the US biotech sector remains unclear at the moment. While some people believe it could potentially ruin American startups if large pharmaceutical companies stumble upon a promising Chinese drug at low price, others believe the competition would be fruitful for the industry. Either way, this trend is anticipated to metamorphose the landscape of the American biopharma sector”.
Our Methodology
We used stock screeners to compile a list of healthcare stocks that experienced significant declines over the past year. We then selected the 12 stocks with the highest analyst upside potential. We also added the number of hedge fund holders for these stocks, as of Q3 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of analyst upside potential. All data is as of February 18, 2025.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A healthcare professional discussing a treatment plan with a patient in an outpatient clinic.
Acadia Healthcare Company, Inc. (NASDAQ:ACHC)
Year Perf: -49.70%
Analyst Upside: 56.48%
Number of Hedge Fund Holders: 43
Acadia Healthcare Company, Inc. (NASDAQ:ACHC) provides behavioral healthcare services across the US in various settings, including inpatient psychiatric hospitals, residential treatment centers, specialty treatment facilities, and outpatient clinics.
The company reported strong fiscal Q3 2024 results, with a total revenue of $816 million, reflecting growth of 8.7% over fiscal Q3 2023. This growth was attributed to patient day growth and rate improvement. Same facility revenue also grew by 8.6% compared to the same quarter last year, including patient day growth of 4.7% and an increase in revenue per patient day of 3.6%. In addition, Acadia Healthcare Company, Inc. (NASDAQ:ACHC) reported a 10.5% increase in adjusted EBITDA for fiscal Q3 2024 compared to the same quarter in the previous year. In addition, adjusted EBITDA margin was 23.8% compared with 23.4% for the same quarter last year, an expansion of 40 basis points.
Apart from its solid financials, the company is progressing consistently across its bed growth targets. It is on track to complete the construction of around 1,200 beds this year, including nearly 700 beds in fiscal Q4 from several new joint ventures and wholly owned facilities. It is also on track to add over 400 beds to its existing facilities for the year, including over 300 expected in fiscal Q4 2024. The company ranks 11th on our list of the 12 most oversold healthcare stocks to buy now.
Aristotle Small Cap Equity Strategy stated the following regarding Acadia Healthcare Company, Inc. (NASDAQ:ACHC) in its Q4 2024 investor letter:
“Acadia Healthcare Company, Inc. (NASDAQ:ACHC), a behavioral healthcare and substance abuse treatment services company, continues to be impacted by the negative sentiment surrounding the news headlines related to patient care and questions about billing practices. While we take these developments seriously, we believe investors’ reaction to the news has been more severe than warranted. Industry peers have faced similar levels of scrutiny in the past with limited fundamental impact, and unless additional information is uncovered, we believe the current scrutiny will be resolved without much of an impact on their business. We continue to believe the company is well positioned to be an important part of the solution to an unfortunately growing need for behavioral health services.”
Overall, ACHC ranks 11th on our list of the most oversold healthcare stocks to buy now. While we acknowledge the potential of ACHC, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ACHC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
