Deathcare is an industry that is always going to be in demand. Indeed, there will never be a shortage of death and death rates will always rise as the population continues to grow at an ever faster rate. However, there are not that many investments that the average investors can make in the market for death unless they decide to go out and start a firm themselves.
Size and experience
Size and experience are key in the deathcare market, as customers are more likely to choose an experienced provider with low costs due to economies of scale over an unexperienced and expensive provider.
Service Corporation International (NYSE:SCI) was founded in 1962, so the company has experience and plenty of size with around 2,000 locations across 48 states and 8 Canadian provinces.
Carriage Services, Inc. (NYSE:CSV) was founded in 1991 and has 250 locations in 12 states while StoneMor Partners L.P. (NYSE:STON) is the youngest, founded in 1999 with 300 locations across 18 states.
So Service Corporation International (NYSE:SCI) has the size and experience, but does it pay off?
Returns
| Company | Gross margin | Net margin | Return on shareholder equity | Return on assets |
|---|---|---|---|---|
| Service | 24.5% | 9% | 11% | 1.5% |
| Carriage | 32% | 10% | 8.4% | 1.5% |
| Stonemor | 80% | – | – | – |
StoneMor Partners L.P. (NYSE:STON) reported a negative net income for 2012, so it is not possible for me to calculate a return on equity or assets. That said, StoneMor Partners L.P. (NYSE:STON) appears to be one of the most profitable of the group with the widest profit margin; however, this point is annulled to some degree as the company is not profitable, but it does reward its shareholders with the best dividend payout in the group.
Being the largest in the trio, Service Corporation International (NYSE:SCI) has the lowest profit margin, but produces the best return on equity. Carriage Services, Inc. (NYSE:CSV) sits in the middle with a gross margin of 32% and a return on equity of 8.4%.
Cash conversion ratio
The cash conversion ratio is a method of evaluating company efficiency and the ability to turn revenue into free cash. In particular, companies that have a high cash conversion ratio can offer the best shareholder returns as they have the most cash generative operations.
| Company | Cash flow from operations | Less: net capital expenditure | Dividend by EBITDA | Cash Conversion Ratio |
|---|---|---|---|---|
| Service | $369 | $115 | $525 | 48% |
| Carriage | $26 | $13 | $62 | 21% |
| Stonemor | $32 | $12 | $195 | 10% |
