Legislation is Killing Health Care Stocks, But Are They Still Worth Buying?

In a time when everyone is trying to work and earn as much money as possible, many Americans have been having less time to take care of their parents. As such, the health care services industry has seen a boom in activity. Amedisys AMED is a small-cap services company that operates in the southern US, and investors may be interested in capitalizing on the industry's rapid growth.

Investors do need to understand, however, that Amedisys is a small company with limited market share. Trends may shift from the south, which may severely affect Amedisys' operations. Moreover, larger hospitals are starting to focus on hospice services, which could also detract from Amedisys' business. New government regulations also pose long-term risks to investors involved in health care services. Funding and reimbursement has already decreased, and may continue to do so in the future.

Year to date, Amedisys has lost over 50% of its market capitalization after positing mixed Q1 and Q2 earnings and guidance reports. Despite making a few acquisitions to increase operational activity, the market has displayed a lack of faith in the company and has driven down the price. Is the market accurate in its actions, or does Amedisys have something going for it in its fundamentals?

Amedisys' cash position has increased dramatically over the last few years: $3 million in 2008, $34 million in 2009, and $120 million in 2010. PP&E has also increased similarly, which may indicate expanding operations. The company has also managed to suppress short-term and long-term debt, and has actually decreased liabilities over the last three years. Shareholders' equity increased in both paid-in capital and retained earnings line items.

Amedisys' financial metrics may also reveal its operational abilities. It trades lower than its competitors when consider price/earnings, price/book value, and price/sales metrics. It also has higher revenue and EPS growth than its competitors.

Amedisys has not experienced favorable reactions from the market in 2011. Could the market be wrong, or has it correctly priced in the effects of slowing growth? The company has posted mixed earnings reports for the first two quarters, but its cash and revenues have increased. Investors should conduct more diligence and understand the company better to decide if it is an appropriate investment idea.