Why HealthSouth Stock Is Rated a "Buy With Caution" Today

by Rob Otman

HealthSouth (NYSE: HLS) is a $5 billion company today. Investors that bought shares one year ago are sitting on a 15.78% total return. That's below the S&P 500's return of 17.92%.

HealthSouth stock is underperforming the market. It's beaten down... so is it a good time to buy? To answer this question we've turned to the Investment U Stock Grader. Our research team built this system to diagnose the financial health of a company.

Our system looks at six key metrics...

Earnings-per-Share (EPS) Growth: HealthSouth reported a recent EPS growth rate of 15.38%. That's below the healthcare providers and services industry average of 36.61%. That's not a good sign. We like to see companies that have higher earnings growth.

Price-to-Earnings (P/E): The average price-to-earnings ratio of the healthcare providers and services industry is 117.04. And HealthSouth's ratio comes in at 17.25. It's trading at a better value than many of its competitors.

Debt-to-Equity The debt-to-equity ratio for HealthSouth stock is 260.79. That's above the healthcare providers and services industry average of 67.65. That's not a good sign. HealthSouth's debt levels should be lower.

Free Cash Flow per Share Growth HealthSouth's FCF has been higher than its competitors over the last year. That's good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth. It's one of our most important fundamental factors.

Profit Margins The profit margin of HealthSouth comes in at 6.97% today. And generally, the higher, the better. We also like to see this margin above that of its competitors. HealthSouth's profit margin is above the healthcare providers and services average of 6.83%. So that's a positive indicator for investors.

Return on Equity Return on equity gives us a look at the amount of net income returned to shareholders. The ROE for HealthSouth is 35.88%, and that's above its industry average ROE of 14.65%.

HealthSouth stock passes four of our six key metrics today. That's why our Investment U Stock Grader rates it as a buy with caution.


Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That's why The Oxford Club offers more than a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth. For more details, click here.

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