Small-Caps in Health Facilities

08/12/2015 8:00 am EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

Small-cap expert Jim Oberweis, Jr., editor of The Oberweis Report, looks at two health sector favorites for risk-oriented investors, an operator of substance abuse clinics and an operator of emergency facilities.

AAC Holdings (AAC) is a leading provider of inpatient substance abuse treatment services for individuals with drug and alcohol addiction.

It operates seven residential substance abuse treatment facilities and one outpatient substance abuse treatment facility, for a total of 560 beds.

AAC also has two facilities under development, a recently acquired property and a property under contract that will be developed into new facilities, and an outpatient treatment facility under contract.

The firm applies a tailored treatment program based on the individual needs of each client, many of whom require treatment for a co-occurring mental health disorder, such as depression, bipolar disorder, and schizophrenia.

In the company’s latest reported second quarter, sales increased approximately 85% to $53.8 million from $29.1 million in the second quarter of last year.

AAC Holdings reported earnings per share of $0.33 in the latest reported second quarter versus $0.05 in the same quarter of last year. Clients of Oberweis Asset Management own approximately 11,500 shares.

Adeptus Health (ADPT) is the largest operator of freestanding emergency room facilities in the US, operating 68 facilities in Texas, Colorado, and Arizona under the name “First Choice Emergency Room.”

Adeptus’ emergency rooms have the same capabilities as traditional hospital emergency rooms and are typically conveniently located in affluent suburbs.

A combination of declining supply of hospital emergency rooms and increasing patient visits—because of increasing insurance coverage under the Affordable Care Act—has created a supply-demand imbalance that Adeptus is attempting to leverage.

In the latest reported second quarter, sales increased 103% to $89.6 million; earnings per share were $0.44 in the quarter versus a loss in the same quarter of last year. Clients of Oberweis Asset Management own approximately 76,500 shares.

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