Chemed Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chemed (NYS: CHE) sank 11% on Wednesday after a former manager filed a lawsuit against the company, alleging that it conspired with two HMOs to admit their patients into hospices even though they weren't dying.

So what: The U.S. government has also suspected Vitas -- a unit of Chemed -- of defrauding Medicare and Medicaid out of "hundreds of millions of dollars," so investors are understandably not waiting around to get out. Vitas spokeswoman Kal Mistry naturally tried to reassure everyone that it has "consistently been in compliance with Medicare and Medicaid rules," but the new cloud of uncertainty will nonetheless put pressure on the shares.

Now what: I'd wait for more details before pushing the panic button. While the Department of Justice is seeking internal Vitas documents in its investigation of alleged abuses, it isn't getting involved in the whistleblower suit right now. With the stock hitting a new 52-week low and trading at a forward P/E of 10, Chemed might be a hated stock worth loving.

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At the time thisarticle was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. Tryany of our Foolish newsletter servicesfree for 30 days.We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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