What a brutal six months it’s been for AMN Healthcare Services. The stock has dropped 27.7% and now trades at $19.67, rattling many shareholders. This may have investors wondering how to approach the situation.
Is now the time to buy AMN Healthcare Services, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think AMN Healthcare Services Will Underperform?
Even though the stock has become cheaper, we're swiping left on AMN Healthcare Services for now. Here are three reasons why we avoid AMN and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Specialized Medical & Nursing Services company because there’s a ceiling to what customers will pay.
AMN Healthcare Services’s travelers on assignment came in at 8,981 in the latest quarter, and they averaged 21.7% year-on-year declines over the last two years. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests AMN Healthcare Services might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect AMN Healthcare Services’s revenue to drop by 8.1%. Although this projection is better than its two-year trend, it’s hard to get excited about a company that is struggling with demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, AMN Healthcare Services’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
We cheer for all companies helping people live better, but in the case of AMN Healthcare Services, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 16.2× forward P/E (or $19.67 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward the most dominant software business in the world.
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