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Is this healthcare pick one of the best shares to buy now?

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Could FTSE AIM listed CareTech Holdings (LSE:CTH) be one of the best shares to buy now? Should I add shares to my portfolio? Let’s take a look.

On the up

Founded in 1993, CareTech Holdings runs a number of residential care homes throughout the UK. Its services are aimed at catering for adults and children with care homes catering for differing needs dependent on its clients.

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As I write, CareTech shares are trading for 691p per share. This time last year, shares were trading for 428p per share. A share price increase in 12 months of over 60% is impressive in my opinion. In 2021 alone, CareTech shares have increased 31% from 524p per share to current levels.

When identifying my best shares to buy now, I often find most of my picks are on an upward trajectory. I believe this could be the case for CareTech too. So what has contributed to the share price increase?

Recent strong performance

In June, CareTech released an interim report for the six months ending March 2021. The results made for good reading. CareTech said revenues had increased 16.5% to £243m compared to the same period last year. This rise in revenue contributed to a 19.1% rise in underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) to £49.4m.

In addition to the rise in earnings, CareTech managed to reduce net debt down to £263.1m compared to £268.9m six months prior. It also decided to pay an interim dividend of 4.6p per share which is a 15% increase on the 4p interim dividend paid out last year.

The best shares to buy now carry risks and reward

I have two primary concerns with CareTech’s investment viability. Firstly, rumoured healthcare and social care reforms by the government in the near future could affect CareTech’s operations. What this looks like is very much a mystery just now and that unsettles me as a potential investor.

Next, despite making progress in reducing it, CareTech’s debt level is something that does concern me. With performance seemingly on the up in recent times, this debt could reduce even further and not be an issue. It would be naive of me to ignore it currently, however.

I think CareTech could be a good addition to my portfolio and there is lots to like about the business. In addition to its recent excellent performance, analysts believe that annual profits could rise 8% and 9% in the next two financial years. I do understand forecasts can change, however.

At current levels, CareTech has a price-to-earnings valuation of just over 15 which I consider to be undervalued. Furthermore, CareTech has good defensive attributes. It managed to keep all its homes operational throughout the pandemic and lockdowns. Government figures suggest adult social care demand will continue to rise for the foreseeable future which will benefit CareTech.

Overall I think CareTech could be one of the best shares to buy now. I would happily add shares to my portfolio at current levels.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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