The Ensign Group (ENSG)

Healthcare services company The Ensign Group (NASDAQ:ENSG). announced better-than-expected revenue in Q3 CY2025, with sales up 19.8% year on year to $1.30 billion. The company’s full-year revenue guidance of $5.06 billion at the midpoint came in 1% above analysts’ estimates. Its GAAP profit of $1.42 per share was 4.9% below analysts’ consensus estimates.

Company Overview

Founded in 1999 and named after a naval term for a flag-bearing ship, The Ensign Group (NASDAQ:ENSG) operates skilled nursing facilities, senior living communities, and rehabilitation services across 15 states, primarily serving high-acuity patients recovering from various medical conditions.

The skilled nursing services industry provides specialized care for patients requiring medical or rehabilitative support after hospital stays or for chronic conditions. These companies benefit from stable demand driven by an aging population and recurring revenue from Medicare, Medicaid, and private insurance. However, the industry faces challenges such as thin margins due to high labor costs and stringent regulatory requirements. Looking ahead, the industry is supported by tailwinds from an aging population, which means higher chronic disease prevalence. Advances in medical technology, including using AI to better predict, diagnose, and treat illnesses, may reduce hospital readmissions and improve outcomes. However, headwinds such as labor shortages, wage inflation, and potential government reimbursement cuts pose challenges. Adapting to value-based care models may further squeeze margins by requiring investments in training, technology, and compliance.

The Ensign Group competes with other skilled nursing facility operators such as Genesis Healthcare, The Pennant Group (NASDAQ:PNTG), Brookdale Senior Living (NYSE:BKD), and Encompass Health (NYSE:EHC), as well as regional providers in its various markets.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $4.83 billion in revenue over the past 12 months, The Ensign Group has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, The Ensign Group grew its sales at a solid 15.7% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. The Ensign Group’s annualized revenue growth of 16.5% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

We can dig further into the company’s revenue dynamics by analyzing its number of units sold, which reached 2.77 million in the latest quarter. Over the last two years, The Ensign Group’s units sold averaged 11.8% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, The Ensign Group reported year-on-year revenue growth of 19.8%, and its $1.30 billion of revenue exceeded Wall Street’s estimates by 1.3%.

Looking ahead, sell-side analysts expect revenue to grow 12.5% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable and implies the market sees success for its products and services.

The Ensign Group was profitable over the last five years but held back by its large cost base. Its average operating margin of 8.5% was weak for a healthcare business.

Looking at the trend in its profitability, The Ensign Group’s operating margin decreased by 1.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. The Ensign Group’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, The Ensign Group generated an operating margin profit margin of 7.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

The Ensign Group’s astounding 15.5% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, The Ensign Group reported EPS of $1.42, up from $1.34 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects The Ensign Group’s full-year EPS of $5.59 to grow 17.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

The Ensign Group has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.4% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that The Ensign Group’s margin dropped by 2.8 percentage points during that time. We’re willing to live with its performance for now but hope its cash conversion can rise soon. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

The Ensign Group’s five-year average ROIC was 16.2%, beating other healthcare companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, The Ensign Group’s ROIC has unfortunately decreased significantly. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

The Ensign Group reported $506.3 million of cash and $2.16 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $568.7 million of EBITDA over the last 12 months, we view The Ensign Group’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $23.78 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue beat. Looking ahead, we were impressed by how significantly The Ensign Group blew past analysts’ full-year EPS guidance expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its EPS missed. Overall, this print had some key positives. The stock remained flat at $183.88 immediately after reporting.

Updated: December 3, 2025 at 10:56 PM EST

Before making an investment decision, investors should account for The Ensign Group’s business fundamentals and valuation in addition to what happened in the latest quarter.

The Ensign Group possesses a number of positive attributes. First off, its revenue growth was solid over the last five years, and analysts believe it can continue growing at these levels. And while its diminishing returns show management's recent bets still have yet to bear fruit, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its solid ROIC suggests it has grown profitably in the past.

The Ensign Group’s P/E ratio based on the next 12 months is 25.6x. Looking at the healthcare landscape right now, The Ensign Group trades at a pretty interesting price. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $207.20 on the company (compared to the current share price of $178.96), implying they see 15.8% upside in buying The Ensign Group in the short term.