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RehabCare Group


is an investment-worthy health-care-services company. The St. Louis-based company provides rehabilitation therapy in health-care centers, joins as partners with facilities to start programs and offers consulting services. RehabCare offers nursing and business savvy, which is why it managed growth amid the economic recession.

Over the past three years, RehabCare Group boosted profit 45% annually, on average, and increased revenue 13% a year. Third-quarter net income soared 69% to $6.8 million and earnings per share climbed 54% to 37 cents. Revenue advanced 15% to $208 million. RehabCare's gross margin remained steady at 18%, but its operating margin widened to 5% from 4%.

Return on equity, a measure of profitability, widened from 7% to 10%, and return on assets stretched from 4% to 6%. Both figures trailed their respective industry averages, but beat those of the

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. During the past four quarters, when the U.S. was in the middle of the longest recession since the 1930s, RehabCare's revenue advanced 13% and profit rose 55%.

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The company's stock has returned 82% over the past year and 33% in three months, far outperforming major U.S. indices and health-care benchmarks. Despite the impressive performance, RehabCare is still cheap. At a trailing price-to-earnings ratio of 18, the stock is on par with its health-care providers and services peer group. The shares are undervalued on the basis of projected earnings, book value, sales and cash flow.

With a market value of $715 million, the company offers a lesser-known growth story. Around 313,000 shares trade daily, indicating reasonable liquidity. That figure has tripled since last year's third quarter as shareholders' equity grew and investors began to recognize the small company's impressive record. rates RehabCare Group "buy."

-- Reported by Jake Lynch in Boston.

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