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small-cap

Should You Exit From This Small-Cap Health Care Facilities Provider – ALR

Apr 08, 2022 | Team Kalkine
Should You Exit From This Small-Cap Health Care Facilities Provider – ALR

 

AlerisLife Inc.

AlerisLife Inc. (NASDAQ: ALR), formerly known as Five Star Senior Living Inc., is a holding company that operates primarily in two segments: residential (formerly known as senior living) through its brand Five Star Senior Living, or Five Star, and lifestyle services (formerly known as rehabilitation and wellness services) through its brands Ageility Physical Therapy Solutions and Windsong Home Health.

Why should Investors make an Exit?

  • Fall-in topline and surge in losses: ALR reported a 19.69% decline in total revenues to USD 934.59 million in FY21 (ended December 31, 2021) from USD 1.16 billion the previous year, due to lower sales across all segments. In addition, ALR's net losses also increased to USD 29.93 million in FY21 from USD 7.59 million in FY20.
  • Industry Lagging Margins: The company reported a slight improvement in gross margins from 15.7% in FY20 to 16.6% in FY21. However, its gross margin in FY21 is significantly lower than the industry median of 30.9%. Furthermore, its EBITDA Margin is 0.7% in FY21, substantially lower than the industry median of 13.1%.
  • Drop-in Liquidity: At the end of December 31, 2021, the company's current ratio was 1.33x, down from 1.47x at the end of December 31, 2020. During the same period, it is much lower than the industry median of 1.59x.
  • Unfavourable Technical Indicators: ALR prices are trading below the downward sloping trend line and facing the same resistance on the daily chart. Furthermore, the momentum oscillator RSI (14-period) is currently at ~41.90 level. On the weekly chart, the price is trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock is placed at USD 1.75, while the key resistance level is placed at USD 2.50.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

 

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

ALR's stock price has fallen 65.21% in the past twelve months and is currently leaning towards the lower end of its 52-week range of USD 2.02 to USD 6.52. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 1.90.

Considering the company's decline in topline, expansion in net losses, weakening in liquidity, industry lagging margins, current valuation, and other technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 2.15, down 0.92%, as of April 07, 2022.

Three-Year Technical Price Chart (as of April 07, 2022). Source: REFINITIV; Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.