Five Star Quality Care, Inc. (FVE)

Five Star Quality Care, Inc. is a national healthcare and senior living services provider focused on building a solid financial base by carefully managing assets, resulting in a better bottom-line and enhanced resident care. With more than 21,000 employees in 230 locations nationwide, the company operates through three major divisions: Five Star Senior Living, Five Star Rehabilitation Services, and Five Star Pharmacy Services.

The Five Star Senior Living division includes more than 200 Independent Living and Assisted Living facilities, Skilled Health Care facilities, and Continuing Care Retirement Communities. Through its Rehabilitation Services division, Five Star operates rehabilitation hospitals and outpatient health rehabilitation clinics. Through its Pharmacy Services division, Five Star operates institutional pharmacies across the country.

There is much opportunity for the company to grow as the aging U.S. population increases demand for independent living properties, assisted living communities, skilled nursing facilities, pharmacies and rehabilitation services. In addition to capitalizing on this industry growth, the company aims to improve profitability of its existing operations by increasing revenues and improving margins. Five Star is also utilizing a proven acquisition strategy for growth and continues to seek additional areas of expansion.

With more than a billion in annual revenues, the company trades at a market cap of $181.8 million, providing a price to sales ratio of only 0.15! Few investors foresee a decline in stock price coming any time soon with less than 4% of the float reportedly shorted. Two analysts currently believe the company is a “Buy”, while one other believes it’s a “Hold”. Currently 46.50% of the shares outstanding are held by institutions while 11.92% are held by insiders.

Most experienced investors would assume at this point that Five Star must have a poor balance sheet and/or revenues are declining, but the company actually has a solid balance sheet with $25.7 million in cash, and revenues have grown at an average of 14.81% the past five years.

Key statistics (12/10/10):

Market cap: $254.70 Million
P/E Ratio: 13.4 versus industry average of 9.3
P/S Ratio: 0.20 versus industry average of 0.93
Price/Cash Flow Ratio: 7.10 versus industry average of 74.60

Debt/Equity Ratio: 0.31 versus industry average of 1.91
Current Ratio: N/A versus industry average of 1.1
Quick Ratio: 1.0 versus industry average of 0.2
Book Value/Share: $4.46 versus current market price of $7.13

Return on Equity: 12.7% versus industry average of -3.4%
Return on Assets: 4.7% versus industry average of 0.5%
Return on Capital: 7.8% versus industry average of 0.8%
Receivable Turnover: 19.9 versus industry average of 27.4