Is Amedisys' Growth Sustainable?

I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer too. But even I have to admit some growth stories are bogus, hence this regular series. We'll be taking a closer look at many of the market's great growth stocks to see which of them show real, numerically relevant signs of sustainability.

Next up in our series is Amedisys (Nasdaq: AMED  ) , a provider of home and hospice care for the elderly and crippled. It's an ironic business to be in right now. Amedisys and several of its peers have taken a beating at Mr. Market's hands. Amedisys, specifically, is down more than 47% over the past year.

Foolish facts

Metric	Amedisys
CAPS stars (out of 5)	**
Total ratings	975
Percent bulls	89.7%
Percent bears	10.3%
Bullish pitches	111 out of 122
Highest rated peers	America Service Group (Nasdaq: ASGR  ) , Triple-S Management, IntegraMed (Nasdaq: INMD  )

Data current as of Aug. 31.

Though many Fools have recently rated the stock to outperform in our Motley Fool CAPS database, this two-star stock is still scarred with the biting comments of bears. Here's an example, courtesy of All-Star investor abitare by way of Citron Research:

"An overwhelming amount of Amedisys' revenues, in fact 87%, is paid directly by Medicare reimbursement. Under the best of circumstances, this concentration of business would be a significant risk factor."

Fools may not like this stock story right now, but insiders are undeterred. Five executives and board members have bought Amedisys shares, including Chief Financial Officer Dale Redman.

The elements of growth

Metric	Last 12 Months	2009	2008
Normalized net income growth	26.5%	52.9%	46.7%
Revenue growth	17.9%	27.5%	70.1%
Gross margin	51.2%	52.1%	52.6%
Receivables growth	(1.6%)	(14.5%)	82.4%
Shares outstanding	28.8 mil.	28.2 mil.	27.1 mil.

Source: Capital IQ, a division of Standard & Poor's.

Looking at this table is to see a growth stock in transition. Let's review:

• Normalized net income growth is down almost 50% over the peat year. Yowsa. I mean, growth has to slow at some point, but I prefer a more modest decline.
• Amedisys' receivables record is a mystery. From what I can tell -- and mind you, this is a guess -- the company went crazy signing contracts in 2008 and then spent the next two years filling those orders.
• Sharp, consistent declines in revenue growth aren't what we want to see, but that's what we have here.

Competitor checkup

Competitor	Normalized Net Income Growth (3 yrs.)
Almost Family (Nasdaq: AFAM  )	67.7%
Amedisys	42.3%
Gentiva Health Services (Nasdaq: GTIV  )	38.4%
LHC Group (Nasdaq: LHCG  )	28.8%

Sources: Capital IQ, Yahoo! Finance. Data current as of Aug. 31.

Not only is Almost Family the faster grower, it also has a better record for producing outsized returns on capital. Amedisys has also suffered lower gross margins even as Almost Family's have improved. Aside from valuation, there doesn't seem to be a good reason to pick Amedisys.

But even on that basis, Almost Family looks like the surer bet. The stock entered today trading for just 7.7 times normalized earnings. Amedisys, by contrast, was trading for 4.6 times normalized earnings. At those levels, it'd be embarrassing to say Almost Family trades for a premium.

Grade = unsustainable

With lower gross margins, lower growth, and a lumpy track record when it comes to receivables, the evidence points to Amedisys as a growth story whose best days are behind it. There could be value here -- and hopefully there is, given the buying by insiders -- but I like Almost Family much more at present levels. As such, I've rated the stock to outperform in my CAPS portfolio.

Now it's your turn to weigh in. Do you like Ebix at these levels? Would you make it one of our 11 o'clock stocks? Let the debate begin in the comments box below, and when you're done, click here to get today's 11 o'clock portfolio pick.

You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.