1. The Move
Acadia Healthcare rose about 15 bags between late 2011 and late 2015:
2. Business Description
Acadia is a provider of behavioral healthcare services. On September 30, 2019, Acadia operated a network of 589 behavioral healthcare facilities with approximately 18,000 beds in 40 states, the United Kingdom, and Puerto Rico. Acadia provides behavioral health and addiction services to its patients in a variety of settings, including inpatient psychiatric hospitals, specialty treatment facilities, residential treatment centers, and outpatient clinics.
3. Fundamental Situation at Bottom & Top
4. Brief Story
Acadia Healthcare took on massive equity and debt financing to expand very rapidly, with Revenue growing from $216 M in 2011 to $1,794 M in 2015. That is 70% Revenue CAGR (!)
Market Cap rose almost 34 fold, but the stock price rose “just” 15 fold, because of the more than doubling of the number of shares issued and outstanding.
Acadia Healthcare is another story of a company that was losing money at the EBITDA and Net Income levels. Still, subsequently Revenue grew so fast that the bottom line turned positive. As usual, investors got overly enthusiastic about the growth of the previous several years and pushed the earnings multiple to 52 times, and that was the top.
It appears Acadia grew too fast and recently had been trying to back off from some of its businesses, namely the UK unit. The stock is down substantially from those August 2015 highs:
It is essential to know about management’s growth plans, despite net losses in any given year, because many times, strong growth eventually produces profits. Moreover, investors usually get excited by companies coming from losses into annual profits, expanding valuation multiples to unreasonable levels.