Lets take a look at AMED ($25.11). As recently as April 14th, AMED was trading above 64.00 per share. Since that time, there has been some negative news on the stock, including a class-action lawsuit¹, an SEC investigation² an earnings miss³ and overall weakness in the home healthcare industry.

With such an onslaught of negative publicity, it’s no wonder that AMED has sold off significantly. Has AMED sold off too much? We will let you decide. Lets look at both fundamental and technical metrics.

Examining the fundamentals, AMED is currently trading at a Forward PE of 5.85, which can be considered cheap relative to the rest of the stock in the Home Healthcare Industry (as of close on 7/21):

Since AMED was at its April peak, analyst earnings estimates for next year (12/11) have been cut approximately 20% (from 5.35 to 4.30) while the stock has depreciated over 60%. This has caused AMED to go from being one of the more expensive home health care stocks (with a forward PE over 12) to one of the cheapest and a compelling value at its current levels.

There is also a lot to like from a technical standpoint with AMED trading around $25.00. After being in free-fall for the past few months, AMED seems to have stabilized around this level over the past 7 trading days (low of 24.41 on 7/20/10). This is important because of the long term significance of this level. Looking at 2 year chart on the stock, we can see that AMED bottomed out right around $25/share in early March 2009 when the market was trading at its lows. Additionally, going out 5 years, we can see AMED also holding in the 23-25 range back in February/March 2006

¹ http://finance.yahoo.com/news/Federman-Sherwood-Announces-iw-1532493764.html?x=0
² http://www.reuters.com/article/idCNSGE6600JD20100701?rpc=44
³ http://www.reuters.com/article/idCNSGE66B0JA20100712?rpc=44

Know Your Options currently holds a position in the security listed above.

Any stock or options symbol displayed are for illustrative purposes only and are not intended to portray a recommendation to buy or sell a particular security. Know Your Options Inc., does not provide financial, tax or legal advice. Content is provided for educational purposes only, and should not be interpreted as either a recommendation nor a solicitation of any products or services , tools provided by Know Your Options Inc. are for educational and informational purposes only. Past performance does not guarantee future results. Supporting documentation is available upon request.

Know Your Options Inc., its affiliates, employees, independent contractors or agents, including your advisor (“Affiliates”) may have opinions from time to time with regard to any of the securities or derivative (“Investment”) listed in the sales literature, newsletters, presentations or research reports attached hereto (“Information”). No mention of a particular Investment should be interpreted as a recommendation by Know Your Options Inc. or any affiliate.
Options involve substantial risk and are not suitable for all investors. Individuals should not enter into option transactions until they have read and understood the risk disclosure explained in “Characteristics and Risks of Standardized Options”, published by the Options Clearing Corporation

Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.

Online trading has inherent risks due to system response and access times that vary due to market conditions, system performance and other factors

Know Your Options Inc. is a state of Il Registered Investment Advisor. To obtain a copy of our privacy policy or a copy of our form ADV part II, please contact us at www.knowyouroptionsinc.com

Tags: AMED, Fundamental Analysis, PE ratio, Stock Valuation, Technical Analysis

This entry was posted on Thursday, July 22nd, 2010 at 5:50 pm and is filed under Education. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.