The Ensign Group Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Help! The Ensign Group (Nasdaq: ENSG  ) has fallen (12%), and it can't get up!

So what: Over in Washington, the Centers for Medicare and Medicaid Services have recommended cutting 11% off next year's Medicare and Medicaid reimbursement rates. Since Ensign's in the business of providing nursing and rehab care services, this is Ensign's bread and butter they're eyeballing. No wonder investors are nervous.

Now what: Investors are punishing health-care stocks almost equally in response to the news. Kindred Healthcare (NYSE: KND  ) , Sun Healthcare (Nasdaq: SUNH  ) , and Skilled Healthcare (NYSE: SKH  ) , for example, have all been whacked. But the punishment at Ensign may be overdone. In contrast to the other companies named, Ensign sports a much more reasonable P/E ratio of just 14.5. Also unlike the other victims of today's sell-off, Ensign pays its shareholders a small dividend and is growing faster to boot (13.3% estimated, before the cut in reimbursement rates).

So while I agree in principle that the stock carries more risk today than it did yesterday, the valuation at Ensign seems much more attractive than at the other companies. Seems to me, if the worries dissipate and these stocks bounce back, Ensign should bounce first, and bounce highest.

If you own The Ensign Group, you'll want to keep close tabs on developments here. Make it easier on yourself by adding the stock to your watchlist and get updates as they happen.