Why Community Health Systems Is Sinking Today

What happened

In response to reporting fourth-quarter results, shares of Community Health Systems (NYSE: CYH), a for-profit hospital operator, dropped 16% as of 11:05 a.m. EST on Wednesday.

So what

Here's a look at the headline numbers from the quarter:

• Revenue dropped 32% to $3.06 billion, which was far lower than the $3.52 billion that Wall Street was expecting. However, this result was mainly caused by a $591 million jump in allowances for bad debts. In addition, the company's decision to sell hospitals in 2017 in an effort to pay down its huge debt load also weighed on revenue.

• Admissions fell by 1.7% when compared to the year-ago period.

• Adjusted EBITDA was $409 million.

• GAAP net loss was $2.013 billion, or $17.98 per share. However, the adjusted net loss was just $0.25 per share. That compared favorably to the $0.34 net loss per share that Wall Street had predicted, but it was still a loss nonetheless.

When these mixed results were combined with the stock's huge year-to-date rally it isn't surprising to see the share price take a step back today.

Money being sucked out of the pocket of a man wearing a suit.

Image source: Getty Images.

Now what

I continue to believe that today's drop doesn't represent an opportunity for investors to get in at a discount. My logic is that this company is still heavily indebted -- long-term debt stood at $13.9 billion at year-end -- sales and admission rates are falling, and the company is expected to post a loss next year. That represents far too much risk for my taste, so my plan remains to stay far away from this troubled business.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.