Bright Horizons Family Solutions Inc (BFAM) Has an Overvalued Stock and Two Alternatives

Conclusion

Bright Horizons Family Solutions Inc (NYSE:BFAM) trades at a lofty valuation without any margin of safety. The largest upside potential is if the company continues to acquire privately owned day-care centers and to offer more elderly back-up dependent care services as this segment of the population is exhibiting higher growth rates. A major downside risk could arise from uncertainty surrounding the government involvement in pre-school education. Some states, according to this article, are already receiving subsidies, and the private day care industry there is facing significant competition. On the other hand, Children’s Place Retail Stores, Inc. (NASDAQ:PLCE) and The Hain Celestial Group, Inc. (NASDAQ:HAIN) face minimal risks as both companies provide essential clothing and food products. Also, Hain Celestial manufactures and distributes food, beverages, and personal care products for infants as well as adults, which provides even more diversification and stability.

Given the high valuation of Bright Horizons Family Solutions Inc (NYSE:BFAM)’ common stock and the significant political risk involved with childcare policies, investors are better served to monitor the shares. A suggested entry level is if/when they reach a trading range of under $25 per share or a 25% discount to recent price levels. Until then investors looking to invest in companies catering to infants/children should consider Children’s Place Retail Stores, Inc. (NASDAQ:PLCE) and The Hain Celestial Group, Inc. (NASDAQ:HAIN).

Delian Naydenov has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial. The Motley Fool owns shares of Hain Celestial.

The article Bright Horizons Has an Overvalued Stock and Two Alternatives originally appeared on Fool.com.

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