From a long-term perspective, Healthcare Services Group, Inc. (NASDAQ:HCSG) has never been this oversold since the year 2000. We can see this on the monthly chart below. The question is whether shares will bounce back and print new highs or has the multi-year upward trend come to a grinding halt.
When evaluating potential value plays, we invariably look at the company's present financials, debt, earnings profile, and dividend. If all of these areas stack up successfully, then the recent decline may only end up being a speed bump instead of a multi-year decline.
Currently, Healthcare Services Group trades with a forward earnings multiple of 18.1 which is well behind the industry average of 58.6. The group has a sales multiple of 1.0 and a book multiple of 4.2 which again are well behind the averages both in the industry and what Healthcare Services Group has traded for in the past.
Stockholders equity continues to increase at the firm. At the end of the June quarter, $450 million was reported in equity as opposed to $260 million in combined liabilities. Suffice it to say, the group has a very strong balance sheet as equity continues to trend in the right direction.
Although operating profit has slipped somewhat, it still comes in at $102 million over the past four quarters. It is important that our value plays are turning a profit especially when the respective firm pays out a dividend to its shareholders. The group's operating profit is down about $25 million since its peak in 2017.
Healthcare Services Group has now grown its dividend by 16 years. The yield at present is just over 3%. The dividend can definitely be one area of concern for the bulls especially if it is not based off a solid footing. A dividend cut, for example, usually results in a lower share-price - at least in the short term. Let's see how it has been trending.
Although paying an above-average yield in this industry, Healthcare Services Group's dividend growth rates have been on the wane over the past decade. Its 10-year growth rate comes in at 7.16% whereas its 1-year growth rate has slipped to 2.6%. Dividend growth is important for a number of reasons.
We have no problem with lower dividend growth rates as long as the funds saved are put to solid use. The earnings are certainly there to cover the dividend at present. Over the past four quarters, $1.14 was generated in earnings per share whereas $0.78 per share was paid out in dividends. In fiscal 2020 and 2021, consensus is predicting $1.34 and $1.59 in earnings per share. Suffice it to say, we see no issue with dividend viability here at present.
On the weekly chart because of the recent upmove, we have a buy signal on the MACD indicator. The further away this indicator is from the zero line, the better the signal. Nevertheless, we also had a buying signal on the weekly chart back in June of last year when the 4-week moving average crossed above the 9-week and 18-week. That signal ended up being a false dawn. This is the difficulty in picking the bottom of value stocks. From our research, the lower this stock goes, however, the closer it will get to a multi-year bottom.
To sum up, we will know in the weeks ahead whether price has printed a firm bottom in Healthcare Services Group. For now, we are going to run with that MACD weekly crossover. Let's see how this plays itself out.
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Disclosure: I am/we are long HCSG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.