What Is Going On With These Collapsing Healthcare Stocks?

Investors certainly hope Community Health Systems’ warning isn’t a canary in the coal mine or the sector’s ‘Martin Shkreli’ moment that causes prices to drop for an extended period of time. Many healthcare companies trade at reasonable valuations, such as Universal Health Services, Inc. (NYSE:UHS) with a forward P/E of under 16 and AMN Healthcare Services, Inc. (NYSE:AHS) with a forward P/E of under 21, but cheap can certainly get cheaper. With the U.S unemployment rate hovering just above 5% and new applications for unemployment benefits near 42-year lows, wage inflation for hospital operators and hospital service providers might be inevitable. With drug prices currently under a regulatory and media microscope, hospital and acute care providers may be hesitant to raise prices to offset their increased costs. This might be especially true as internet technologies allow for consumers to compare prices and check healthcare provider ratings. 

Still, the long-term fundamentals of the companies are solid.  People will always get sick, and as the U.S population continues to rapidly age, they will be in greater need of healthcare services. The latter half of the baby boom generation is only beginning to retire which should signal a boom period for healthcare providers in the U.S.

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