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Almost Family (NASDAQ:AFAM) is a home health care provider that I believe is considerably undervalued. Shares of Almost Family rose throughout 2008 before crashing in early 2009. Prices have since risen over 100% but are still over 30% below all time highs.

Below is a list of strengths and weaknesses of Almost Family from a quantitative viewpoint. This page also has ratings for Almost Family by indicator category.

Strengths:

Valuation:

  • PEG ratio: 0.7

This is below the threshold of 1 that many GARP investors require.

  • Enterprise Value / Revenue: 1.03

The median Enterprise Value / Revenue ratio is 1.54.

  • Enterprise Value / Operating Cash Flow / Growth: 0.50

The median for all stocks is around 1.25.

  • Price to Sales: 1.12

This is below the median price to sales ratio of 1.32.

  • Price to Earnings: 12.59

The P/E of the S&P 500 is over 18.

Financial

  • Quick Ratio: 2.56

A quick ratio of over 1.5 generally means a low risk of default in the near future.

  • Long Term Debt to Equity: 0.83%

  • Total Debt to Equity: 1.96%

  • A Debt to Equity ratio of below 10% is excellent.

Surprises and Estimate Revisions

Almost Family has consistently beaten earnings estimates. Earnings estimates for Almost Family have been revised upward over the last month. Positive earnings surprises and upward earnings revisions are indicators of high momentum.

Technical

AFAM is short term oversold. Over the last year, when the RSI 5 of Almost Family has dipped below 30, prices have put in a low.

Other

  • Return on Equity: 20%

  • ROE has been over 15% for each of the last 5 years.

  • Net Profit Margins have increased for the last 7 years.

  • High return on equity and increasing profit margin are indicators of efficiency.

Risks:

Technical

On balance volume has been declining while shares have been rising. This divergence may indicate the “smart” money is exiting the stock.

Institutional Buying / Selling

Institutional investors have been selling AFAM shares over the past few months. Institutional investors move stock prices. It is not generally a good idea to hold a stock when institutional investors are selling.

Other

Recent earnings and sales growth rates have not been as high as past growth rates. This indicates that prices are not likely to rise as fast as they have in the past.

Fair Value Estimate

To get an idea of where we expect Almost Family to trade, we calculate fair value estimates by solving for the price if shares trades at a “fair value” multiple. The median P/E in the health care sector is roughly 18. Using 18 as the fair value multiple, AFAM would trade at $56, 50% higher from current prices. Estimating fair value with EV/Revenue and EV/OCF/Growth also gives us a price near $56.

Summary

Almost Family’s reward to risk profile is attractive. It has a very low risk of running into financial trouble while current prices appear far below fair value. Although there are a few risks, they only dim the bright prospects for Almost Family.

Disclosure: None

Source: Almost Family Is Undervalued and Financially Sound