How Much Weight Should I Give to M*'s Growth, Profitability & Financial Health Ratings?

CathyG

Though the above relate to stocks, M* also gives Stewardship and other similar ratings for Mutual Funds - so I hope this isn't too much off topic.

We are having to move both our mothers to different new Assisted Living facilities. Sunrise (SRZ) appears to be the best place for my Mom. However, when I checked SRZ in M*, they rate it a "D" Growth, "F" Profitability and "D" Financial Health. I would hate to make all the arrangements and move Mom if there is a reasonable chance that Sunrise may not survive financially and will have to close. But I don't understand Prospectus or know what "red flags" to look for in their Financials, so I'm hoping someone here can tell me how much I should worry about M*'s awful ratings.

scott

It's not looking too good stock-wise; it was down 10% yesterday and is near a 52-wk low. A lot of these companies were thought (in some circles) to be safe havens (and I definitely get the logic behind the thought that these companies were going to be a long-term theme, given the amount of people entering assisted living age) in 2008 and then the stocks got obliterated.

SRZ went from in the $40's in 2007 to 27 cents in 2008 (and then fell back around there in 2009.) From what I can tell, a lot of these companies had (and are still having) a rough period with the housing crisis because many who thought they were going to sell their house and move to long-term assisted care did not. You see this to varying degrees in other companies in the industry. It also becomes what effect do new regulations have (or regulatory uncertainty), what effect do state/national finances have on the industry, etc etc.

I don't know if the company will not make it, but I think you're going to see a relatively bumpy road for the industry as a whole due to the factors mentioned above (which remain problematic and look as if they may turn more problematic again) in the next 5-10 years. Take a look at Brookdale Senior Living (BKD), which is apparently one of the largest companies in the space, which has had similar stock performance lately and has similar ratings from M* (and BKD went from about $40 in 2007 to $4 in 2008/09.)

CathyG

Reply to @scott: THANK YOU SO MUCH, SCOTT! Sounds really dismal, but what you said makes a lot of sense regarding the problems with most decent quality Assisted Living facilities. Unfortunately, that means no viable alternatives. So I guess all I can do is hope Sunrise survives for at least a few years.

scott

Reply to @CathyG: Admittedly, I have no experience with the situation (yet), but I think if you went in and presented some of your concerns (maybe not in a specific way, but in a way that addresses the fiscal status of the industry as a whole and therefore, in a roundabout way, the company), their response may help you feel better about the situation.

Again, I've looked at these stocks recently because the theme makes sense: many people reaching that age - but it just doesn't seem to be working at all. I'm not saying that these companies will go under, as I would imagine there's always going to be a need for them. However, I think how they respond to your concerns about the industry (and therefore the company) may make you feel better about them.

CathyG

Reply to @scott: Thanks, Scott. I'm sure they would try to put the most positive light whatever their financial situation. But then, again, if no alternatives, doesn't make much difference. Can't hurt to ask, though. Good idea.