RYM - Ryman Healthcare

[winner69]

I started this $6.50 thing by stating that's where I saw it at fair value to me a little while back and stand by that view.

In my opinion many people, myself included have a required rate of return in equities that fairly rewards them for the specific risk of a stock and the market risk. Lets suppose for the sake of this argument that a typical expected return on an equity investment is 15%. Lets also suppose that RYM achieve their medium term stated goal of 15% EPS growth and we know their dividend yield is 1.4%.

I'd be expecting a 13.6% improvement in the SP to compensate me for the equity risk and woefully low dividend yield. The stocks trailing PE had blown out to 35 times last years underlying EPS results when I made that comment a while ago and in my view this isn't supported by a 15% growth rate in EPS.

My contention is that a PE in the mid-late twenties is more appropriate with a 15% growth rate going forward which is supportive of a price of approx. $6.50 as at about 2 months ago.

I think its more likely that we will see a lengthy pause in the SP at around current level's while we wait for growth to catch up. If the stock price does nothing for say 18 months in effect shareholders only get a 1.4% dividend yield and in my case, this undershoots my required rate of return by 13.6%. Therefore I am indifferent to paying $6.50 now or about $8 in 18 months or so.

Look at it another way, the stock price is up 125% in the last two years and the EPS growth has been 40%. Ask yourself whether the price can keep going up unsupported by EPS growth ?
PE expansion cannot go on forever and in my opinion is highly likely we'll get PE contraction either through continuing price correction of lengthy SP stagnation.

History shows that whenever RYM gets to elevated multiples the next 3-5 year returns are generally negative (a post of some months ago giving the details for which I got some red marks)

Your day will come ....even voyager will run out money at $7 to give us the opportunity at $6.50 and we will make heaps of money (again)

(and for couta - during this turmoil RYM will still build heaps and make heaps of money)