Stock Pick. Almost Family (AFAM)

Almost Family (Nasdsaq:AFAM): Last closed at $26.45 per share, with an average daily volume of 92,000 shares. Almost Family is a small cap name in the fast growing home healthcare sector. The companies business is devided into two segments, Visiting Nurses, who provide skilled medical services in a patients home, and Personal Care, home health aides who provide custodial care. They recently acquired Patient Care, Inc for $46.5 million, giving them a good footing into the lucrative markets in New Jersey and the rest of the Northeast. The company has a 3 year EPS of 45%, the last three quarters seeing ESP growth of 36%, 42% and 75% respectively. Many times a company will have high ESP growht, but significantly lower sales growth that suggests the growth might be from measures that will not carry forward, AFAM however has healthy sales growth as well. The company is good with its money, as can be seen by the Return on Equity of 25%. This is a lightly covered stock, with only three analysts (Avondale Partners, Jefferies Inc. and Stephans, Inc) providing coverage. As such this is a relatively undiscovered name on Wall Street, institutional ownership is between 8% and 15% with indsider ownership of 15%. One of the things I always like to see in a small company is strong investmet on the part of management. I look at it this way, when people give me money to manage they would like to see that I''ve got a good stake in it as well, and I feel the same about small cap and mid cap stocks. Finally the company has a history of beating price targets set by the analysts, most recently by 25% which is a trait seen in the strongest of stocks.
When we move to the charts Almost Family is starting to show the signs of a stock about to make significant gains. We see a large unfilled gap higher on May 5th, then a break higher from the base on May 21st. From May 21st until last Thursday the stock had been in a tight base near highs, finally breaking out with a large thrusting bar on Friday. This is often what we see in the most powerfully moving names in the market. There are a few drawbacks, most noticably the low average volume that the stock trades with. In addition to that the most recent breakout was not accompanied by the heavy volume I typically like to see. As a result of the lower volume on the breakout I will only be putting on half of my normal position size at first, and will then wait and see what happens on this breakout. If it performs well I will pick up the rest of the trade on the next pullback or breakout from a base that the stock shows. The last risk we see in the company is a risk to earnings, and its one we are seeing across the economy. Since Home Healthcare workers have to drive, and much of Almost Families money comes from Medicare and Medicade, rates that are set, the company could see that set them back in the short to intermediate term, although my own opinion is that fuel prices have topped significantly for the time being.