The latest darlings of Wall Street seem like an unlikely industry. According to an article in the Wall Street Journal last week, one of the hottest new financial developments is companies which run assisted-living centers.

In the past year, several companies in the assisted-living business have "gone public," offering stock for the first time. Now, according to the Wall Street Journal article, early results indicate that the businesses have done very well for themselves.

Among the companies singled out by the Journal as recent winners is the Forum Group, which has seen a 47.2% increase in its share price so far this year. Another standout is Emeritus, which has increased by 67.7% in the same time period.

Why is this industry singled out for such gains? Analysts suggest that there are several reasons for the recent growth in the industry, and that those same reasons predict continued growth. Increasingly, assisted living centers are used as alternatives to nursing home care, at a significantly lower cost.

Average national costs in assisted living centers tend to run in the $55-to-$60-per-day range, while nursing home costs are typically $80 to $90 per day. Given strained government and personal budgets, those savings not only look attractive today, but are likely to be even more attractive in the future.

Most states also make building assisted living centers easier than nursing homes. While certificates of need may restrict the number of new nursing home beds, there may not be such limitations on assisted living facilities. And nationally, most assisted living facilities reach 95% occupancy within 15 months of opening.

Nursing home beds are not increasing as rapidly as assisted-care facilities. Furthermore, the available nursing home beds are increasingly occupied by acute-care patients who have been eased out of hospitals by managed care, DRGs and other trends in health care. These trends have helped fuel the growth in the assisted-living industry.

Most of the principal players in the development of assisted living centers are small, recent start-ups. As a result, they have not yet proven to be very profitable businesses. Most of their income for the near future will be expended on start-up and construction costs, so they may not collectively be profitable for some time to come.

Still, even though the companies have not yet made substantial profits, investors have. In addition to The Forum Group and Emeritus, the Wall Street Journal article singled out Sterling House (which posted a 75.4% gain in share prices so far this year), Assisted Living Concepts (with a 39% gain in price) and ARV Assisted Living (38.3%). One company, Just Like Home, actually posted an 11.1% decrease in share price so far this year.
 
  

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