Estia Health Ltd (ASX: EHE) has delivered a stunning performance since mid-January, climbing a remarkable 48% to be trading at $6.29 when the market closed on Friday. That compares to a 4% rise from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the same time.
About Estia Health
Estia Health, which is an aged care operator, listed on the ASX in December last year, shortly after rivals Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Ltd (ASX: REG) made their strong debuts.
However, the company was deemed 'over-priced' after the group's $1 billion float failed to live up to the same level of hype as that enjoyed by its rivals. The stock plummeted to a low of $4.25 in the weeks that followed – down from a listing price of $5.75.
Pleasingly, Estia Health now appears to have shaken off its early doubters and there are reasons to suggest it could have even further to climb.
What's happened?
As it stands, the aged care industry remains fragmented and Estia, Japara Healthcare and Regis Healthcare are all doing their best to consolidate.
Last week, Estia Health reported that it had acquired another four aged-care facilities, bringing its total number of acquisitions to seven over the last seven months. It now also has 4,127 places that it can offer to patients, while it is striving to have 10,000 beds on offer by the end of the 2020 financial year.
While that will no doubt put Estia Health in an excellent position to benefit from Australia's ageing population, there are two other key factors that also appear to be playing in the company's favour.
Firstly, the company said that its single-room configuration had increased to 93% – up from 92% in January. It maintains an industry leading figure of single-beds relative to its size which has historically proven to be one of the most important factors when a resident or family is choosing aged care.
Secondly, Estia also announced the appointment of Steven Boggiano as Director of Strategy. According to the company's announcement, Boggiano has an 'extensive track record with mergers and acquisitions', which could help Estia excel in its expansion plans.
Should you buy Estia Health?
Although Estia Health has rallied in price over the last few months, it could still be a great pick-up for investors who maintain a long-term perspective.
The use of a "roll-up" strategy (where a company buys smaller rivals to expand its own market position) has generated enormous returns for companies such as G8 Education Ltd (ASX: GEM) and Greencross Limited (ASX: GXL), but it is by no means risk free. Investors who purchase Estia would need to monitor the company's acquisition decisions and ensure it is not overpaying for the businesses it purchases.
At this stage however, it could well be worth a position in your portfolio, or at very least on your long-term watchlist.
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