Ensign Group Inc (NASDAQ:ENSG): Exceptional Compounder in a Hyper-Fragmented Market

We came across a long thesis on Ensign Group Inc (NASDAQ:ENSG) on ValueInvestorsClub by ppsm920. In this article we will summarize the bulls’ thesis on ENSG. The company’s shares were trading at $149.11 when this thesis was published, vs. closing price of $130.84 on Jan 7^th.

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Ensign Group Inc (NASDAQ:ENSG) is the largest skilled nursing facility (SNF) operator in the United States, with over 20 years of experience and a core strategy of acquiring underperforming facilities and rapidly improving their operations. Its regional subsidiaries oversee skilled nursing, assisted living, home health and hospice, mobile ancillary, and urgent care operations.

The bull thesis relies on the premise that ENSG will maintain its superior execution and continue to compound value in a hyper-fragmented market. The author argues that the company’s approach towards acquiring underperforming facilities and significantly improving their quality is a strong competitive advantage – with this approach, ENSG can continue to consolidate (ENSG is a market leader with only 2% share) and grow its portfolio of facilities by 10% per year. Besides that, another significant contribution to earnings growth will be the already mentioned improvement in the quality/efficiency of acquired facilities – as occupancy rates improve, ENSG’s flow-through margins will be substantially higher as well, thus boosting earnings. Another important argument of the thesis is that demand for skilled nursing is only getting higher in the US, primarily driven by the population aging trend, all while barriers to entry in the industry are only getting higher (entrants face such challenges as increasing regulatory requirements, shortage of skilled staff, increasing operational sophistication). Consequently, the author expects the supply-demand imbalance to intensify in the following years, which will open up tremendous opportunities for leaders like ENSG to fill the void through new facilities openings.

Overall, the author does not provide a precise price target for the stock. He argues that, while ENSG is fairly valued based on its valuation multiple, its stock price could compound at a high-teens percentage rate over the long term, driven by the combination of the aforementioned factors.

While we acknowledge the potential of ENSG as an investment, our conviction lies in the belief that some 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 ENSG 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 was originally published at Insider Monkey.