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Why the Estia Health Ltd share price is up 20% so far in 2017

The Estia Health Ltd (ASX: EHE) share price has soared 20% this year to trade at around $3.12 currently.

The company is a provider of aged care services and accommodation, developing and managing several facilities for retirees and pensioners. However, the company was caught up in scandals last year, which saw the share price plunge 59.6%, a forced capital raising, cancellation of the interim dividend and the company’s founder leaving.

Estia’s major competitors Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Limited (ASX: REG) also saw their share prices plunge in 2017, with the government flagging cuts to the funding it hands out to aged care providers like Estia. Other flagged changes to government funding and rules regarding how residents pay for their accommodation also weighed on the aged care companies. But investors appear to have forgotten about these issues, pushing Estia’s share price up.

Another recently highlighted issue where Aveo Group (ASX: AOG) appeared to be taking advantage of some of its residents could put the whole industry under the microscope – which could see Estia’s share price lose all or most of its gains so far this year.

There’s no doubt there are substantial tailwinds blowing in the aged care sector, with an ageing population and more demand for aged care services and cheaper government-assisted accommodation. My preference would be to stick to the smaller end of the market with players like Gateway Lifestyle Group (ASX: GTY), Lifestyle Communities Limited (ASX: LIC) and Eureka Group Holdings Ltd (ASX: EGH) as we highlighted here.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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