We do not believe in luck, but we admit to feeling lucky when a Long Idea as good as this one comes across our desk.

There’s nothing lucky about getting old, but it is 100% inevitable. And, there’s opportunity in businesses that deal with inevitabilities in life, especially when those businesses are managed well and trading at a discount.

We hope you enjoy this latest piece of free research. It is from our latest Long Idea report published this week, available to Pro and Institutional members. You can buy the full report a la carte here.

We’re not giving you the ticker for this pick, but we are happy to share our hard work because we want you to see how good our research is. Always let us know how we can provide more value to you.

This stock offers favorable Risk/Reward based on:

  • an aging population driving healthcare services demand,
  • worsening mental health driving behavioral services demand,
  • rising admissions and revenue per patient,
  • a strong track-record of revenue and profit growth, and
  • a cheap stock valuation.

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U.S. Population is Getting Older by the Day

The United States is getting older. The U.S. population age 65 and older increased 3.1% year-over-year (YoY) in 2024, while the population under the age of 18 decreased by 0.2% YoY. While children still outnumber adults in the U.S., the gap is narrowing. The share of the population age 65 and older has increased from 12% in 2004 to 18% in 2024, while the share of children declined from 25% to 22%.

This trend is not going to change anytime soon. The Congressional Budget Office projects the ratio of people ages 25-64 to people ages 65+ to decline from 2.8 to 1 in 2025 to 2.2 to 1 by 2055. Figure 1 illustrates how this ratio has steadily declined since the 1950s.

Additionally, the Census Bureau expects the U.S. centenarian (ages 100 and older) population to quadruple from 2024 to 2054.

Figure 1: The Ratio of 25-64 Year Olds to 65+ Year Olds: 1950 Through 2055

Sources: Congressional Budget Office

Healthcare Spend Rises with Age

An aging population drives more healthcare spending. This fact makes logical sense given that, empirically, the older a patient, the more they spend on personal healthcare services.

The latest Centers for Medicare & Medicaid services (CMS.gov) data shows that the per capita spending of a person aged 85 or older is 8.5x higher than the spending of a child aged 18 or under. For those aged 65-84, healthcare spending is 4.9x higher than those aged <18. See Figure 2.

Figure 2: Healthcare Spending Per Person by Age Group in the U.S.

Sources: Peter G. Peterson Foundation and CMS.gov

Consistent Revenue and Profit Growth

This company has a proven track record of growing revenue and profits across decades. The company has grown revenue 9% and net operating profit after-tax (NOPAT) 10% compounded annually since 1998. See Figure 3.

Additionally, the company’s Core Earnings grew 11% compounded annually from $77 million in 1998 to $1.2 billion in the TTM ended 2Q25.

The company improved its NOPAT margin from 6% in 1998 to 9% in the TTM while invested capital turns fell from 1.5 to 1.3 over the same time. Rising NOPAT margins are enough to offset invested capital turns and drive the company’s ROIC from 8% in 1998 to 11% in the TTM.

More recently, the company has grown revenue and NOPAT 7% and 6% compounded annually since 2019, respectively. Rising admissions and revenue per admission, high occupancy rates, and decreasing costs relative to revenue drive a complete recovery in profits since the post-COVID dip.

Figure 3: Revenue and NOPAT Since 1998

Sources: New Constructs, LLC and company filings

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