ADUS: Home care for an increasingly old & infirm population

Addus HomeCare (ADUS) provides care at home for the elderly and others at risk of being institutionalized to keep them out of expensive hospitals and nursing homes. 75% of their revenue comes from non-medical personal care which includes: housekeeping, laundry services and meal preparation.

I hold this stock because, (with only 50K customers currently served), there are incredible opportunities for growth. And this potential does not seem to be fully priced in yet, with a p/e ratio under 30 and very low debt.

The elderly population in the USA is rapidly increasing. Next year, in 2025, there will be 63 million Americans over the age of 65. 5 years later, that number will increase to 71 million. The elderly will make up over 20% of the US population by then.

The population is also becoming increasingly unhealthy and less able-bodied. This is true across all age groups, including the elderly. Let's look at 2 examples of this:

1. The federal reserve keeps excellent track of the health of the civilian labor force. In January 2020, before the pandemic, there were 6.2 million with long term disabilities. By May 2024, that number increased by 37% to 8.5 million. https://fred.stlouisfed.org/series/LNU01074597

2. Covid infections increase the risk of dementia by 60% 12 months after infection. And there are still waves every 6 to 12 months. The cumulative effect of repeat infections will increase the dementia burden. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4716751

So, there is a rapidly increasing elderly population. And, that population is becoming increasingly unhealthy and less able to take care of themselves. Demand for home care services will be very strong in the coming years.

Also, there is an enormous cost benefit. Regular home care services are roughly 1/3 of the cost of living in a nursing home. And they have been found to delay nursing home admission by an average of 3 years. This cost reduction incentivizes insurance providers and the customers themselves to choose home care rather than the costly alternatives.

A future potential headwind for volume growth is that it could be limited by labor shortages. Fortunately, the labor situation in the health care and social assistance has been steadily improving since 2022: https://fred.stlouisfed.org/series/JTS6200JOR

Revenue growth has been above 10% since 2021, including 11.6% in the most recent quarter. And margins have been improving slightly too.

I'd appreciate any feedback. What are some downsides of ADUS that I haven't covered? Thanks.