This one actually came in a couple weeks ago from a reader, who quickly suggested the solution. Took me a little while to get to it, during which several other folks sent me this email as well, so there certainly seems like some hunger to find out what company this is. And as a small bonus to the Gumshoe readers, my delay means the shares are down close to 20% from when the email began circulating.

It’s from Ann Sosnowski, whose teaser picks we’ve snooped out before (including Lynas, one of the stronger gainers in the Gumshoe spreadsheet). This is for her tamer newsletter, Diligent Investor.

Though several folks sent in this email, and more than one of you picked it right, the first one was one of the Irregulars who has given us a solution before, he calls himself Streetsifter, so one more credit for him.

So … what do we know about this company? It’s in the home health care business, which I think we can all foresee should be a growing business as the baby boom generation becomes more infirm.

She’s recommending a home health care provider as the “best synergy company” and the key giveaways are:

“Last February, this company announced that it would begin trading its shares on the Nasdaq Global Market”

“The company has 74 service locations in Florida, Kentucky, Ohio, Connecticut, Massachusetts, Alabama, Missouri, Illinois and Indiana”

“In January 2007, the company finished its ninth acquisition since 2004”

In various places Taipan has hyped that they think this one might gain “115% by August” and “80% in seven months” … so either one of those sounds pretty good, though it kind of makes it sound like they’re juste making these numbers up. Nah, they wouldn’t do that … would they?

Sosnowski hypes this as a “synergy” company, which basically means they’re going to keep buying smaller companies and gaining “synergies” from those acquisitions. I’m never sure whether the “merging for synergies” or the “breaking up to unlock value” strategy makes more sense … though I do know that both make money for the investment bankers, which is probably why they swing in broad cycles back and forth. I do think that this industry may lend itself more to economies of scale and actual recognized benefits of merging, but that’s just me … and I don’t know the specifics of this one very well.

So we’ve gotten ahead of ourselves. What is this company?

“It has a profit margin of 4.62%, low by some standards but high compared to its industry competition.”

Sosnowski says that, “in short, this company has fast become the go-to place for aging boomers and their parents.”

According to Streetsifter … who appears to be correct, again, in sleuthing one out for us, the answer is …

Almost Family (AFAM)

Now, in my opinion it’s ridiculous to call this a monopoly, or even a burgeoning monopoly. AFAM is a very small company, not far over $100 million in market cap. They are in several markets where they undoubtedly have a strong presence, but there are both bigger and smaller companies all over the place in this business. Amedisys (AMED) is a much larger company, with better margins (and weaker growth) that in fact just bought a few of its small competitors. Gentiva (GTIV) is another one with strong numbers that’s about five times larger.

And though all these companies have somewhat different mixes of services and specialties within home health care writ large, I don’t see that AFAM has particularly impressive profit margins — they’re up to about about 4.9% now, compared to nearly 8% for AMED and 5%+ for GTIV. That might not mean much — or maybe it means AFAM is the one that has room for improvement, but I hesitate to accept Sosnowski’s assertion that this is a market-leading profit margin for this industry. GTIV and AFAM both carry a fair amount of debt, too, unlike AMED.

I agree with the premise that home health care is likely to be a very important industry in the coming years … and I can see a significant investment thesis based on this small regional player becoming larger through continuing acquisitions, since even with some larger competitors the industry as a whole is very diffuse — lots of tiny companies and family owned businesses, lots of independent contractors and nursing agencies and small nursing home companies.

So at a quick glance this is a profitable, tiny, home health care company that’s pursuing a strategy of growth through acquisition. What I don’t see is why this one is different from, or particularly better than, its competitors, or that they offer a service that’s really different from what other companies offer — after looking into this a little bit, I actually thought Amedisys sounded like a more compelling purchase, trading at a much more significant discount to its growth rate.

That’s just based on a quick look at the numbers, though, maybe AFAM is where the growth is, or maybe there’s something more compelling in their “story” that I’m not seeing. It’s quite possible that they can prosper by just rolling up small private provider companies and attaining near monopoly status in very small regional areas (not unlike what’s happening in the general staffing industry right now) … whether that’s a worthwhile bet is for you to answer — and if any of the Gumshoe readers have looked at this industry or company before, please chime in and tell us what you think we should look for. I got the email on May 21 for the first time, so this goes in the spreadsheet at a price of $24.94 … though today it’s down to just a hair over $20 (ouch!)