Select Medical’s stock price has taken a beating over the past six months, shedding 61.9% of its value and falling to $14.94 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Select Medical, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Select Medical Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why SEM doesn't excite us and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Outpatient & Specialty Care company because there’s a ceiling to what customers will pay.
Select Medical’s admissions came in at 9,351 in the latest quarter, and they averaged 1.3% year-on-year declines over the last two years. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Select Medical might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Select Medical’s revenue to drop by 11.6%, a decrease from its 1.7% annualized declines for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Select Medical’s margin dropped by 13.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Select Medical’s free cash flow margin for the trailing 12 months was 5.8%.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Select Medical, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 12.8× forward P/E (or $14.94 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment. We’d suggest looking at the most dominant software business in the world.
Stocks We Like More Than Select Medical
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
