In a sliding market, Brookdale has defied the odds, trading up to $6.92 per share. Its 29.8% gain since November 2024 has outpaced the S&P 500’s 1% drop. This run-up might have investors contemplating their next move.
Is now the time to buy Brookdale, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Brookdale Will Underperform?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why you should be careful with BKD and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Brookdale’s demand was weak and its revenue declined by 4.8% per year. This wasn’t a great result and is a sign of poor business quality. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Brookdale, its EPS declined by 22.1% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Brookdale burned through $7.94 million of cash over the last year, and its $5.60 billion of debt exceeds the $239.7 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Brookdale’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Brookdale until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Brookdale, we’ll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 3.6× forward EV-to-EBITDA (or $6.92 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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