Medibank Private Ltd shares slip: Should you buy more?

The share price of Medibank Private Ltd (ASX:MPL) has dropped around 12% in the past three months.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australia's leading private health insurer Medibank Private Ltd (ASX: MPL) is now approaching six months as a listed entity and happily all initial public offering (IPO) retail investors are still sitting on a gain.

Those gains aren't as spectacular as they were a couple of months ago however…

After floating at $2 per share in late November, the share price rallied and touched $2.59 in February – providing retail IPO shareholders with a paper gain of 29.5%! Since hitting this high however it has been a slow-and-steady decline with the share price closing last Friday at just $2.15.

The decline in Medibank's share price over the past three months is at odds with the group's only listed peer, NIB Holdings Limited (ASX: NHF). NIB has enjoyed a share price gain of close to 10% and thereby outperformed Medibank by over 20%.

While some investors may be alarmed by the reduction in size of their profit on paper, arguably the share price weakness is an opportunity for investors looking to own a blue-chip and defensive business to consider buying in or adding to their existing holding of Medibank.

Here are two reasons to put the stock near the top of your watchlist:

Market Leader: Of the total Australian private health insurance (PHI) market, Medibank had a 29.1% share (as at 30 June 2014); not far behind was Bupa with a 26.7% share; while in third place was the much smaller HCF with a 10.8% share.

Being the biggest doesn't automatically correspond with being the best of course a review of key metrics such as operating profit margins across the PHI industry reveals that Medibank has a lot of work to do before it is the leader in this regard.

This negative, can actually be turned into a positive for investors. Firstly, it shows that there is room for improvement which could lead to further earnings growth; secondly, its market size should provide Medibank with certain advantages such as enhanced bargaining power with suppliers that – as we will see in the next point – are central to the group's strategic plans.

Strategy: Management has stated that its strategy for positioning Medibank for profit growth involves moving from a health insurance focus to a health assurance focus. The key here is that this strategy will see Medibank play across the entire value chain with the "ability to influence different parts of the care chain to meet the needs of their customers". This is an important change in the business model for the company and cost savings could be realised if it can negotiate improved terms with hospitals and primary health care providers which together account for close to 80% of PHI expenditure.

Motley Fool contributor Tim McArthur owns shares in NIB Holdings Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »