GTIV is a provider of home health care services and hospice care in the US. I first bought the stock in mid August, when the entire world was hating the company for around $7.40/share.
The stock was down more than 50% in the last few weeks and about 70% since its March highs.
The sell off was caused by a flurry of headlines related to medicare/caid cuts as the government struggled with its budget issues. More specifically, there were allegations that GTIV staff had geared patient treatment in a manner that would ensure maximum reimbursement, regardless of whether or not treatments were necessary.
The high debt load further contributed to the sell off as investors questioned if reduced margins resulting from government crackdowns would prevent the company from servicing its debt.
While these concerns were valid, i decided to buy the stock for three reasons.
First, i think the long term defensibility of the industry is sound. It is a demographic fact that the US has an aging population, and this population will need care.
Second, while quantitatively I was intimidated by the debt load, qualitatively I reasoned that lenders would work with the company to adjust the terms of the debt rather than allowing the company to default. My thinking was that financial institutions were in the cross hairs of EVERYONE – politicians, talking heads, occupiers etc. There was no way that a lender would want to see a front page headlines saying, “Bank Forces Seniors to Give Up Care” or something like that. Basically, there was headline risk for the banks if they did anything other than work with GTIV and its contemporaries.
Third, since its founding, GTIV has rolled up several smaller businesses. In a crunch, these businesses could likely be sold off in order to meet debt servicing needs.
I felt reasonably confident in the above analysis, so I initiated a small position with plans to dive deeper into the industry. Initially the stock began to drift higher, causing me to delay digging deeper and reinforce my hypothesis.
However, within a few weeks the stock had dropped another 50% to a low of $3.02 and the airwaves were alive with talk of a potential bankruptcy.
While i was strong enough to not panic and sell my shares, i was not strong enough to back up the truck and really start aggressively buying shares… a costly mistake considering that the stock has since rallied more than 150%.
In summary – while I agree with Klarman’s comments that if you wait until you have done 100% of the analysis before buying you may lose the opportunity, in this case not following up on my original analysis prevented me from having the strength to buy when it really mattered. A mistake that I won’t be making again.