Ramsay Health Care Limited’s (ASX: RHC) success has been built on a sound growth strategy. This has caused its EPS to rise by 16.8% per annum during the last 10 years. This is a higher rate of growth than healthcare peers CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH). Their earnings have increased by 14.1% and 7% per annum respectively. In my view, there is more bottom line growth to come for Ramsay.

Investment

Ramsay invested heavily in its network of regional hospitals during the financial crisis. This enabled the company to use its capital expenditure more efficiently since development costs across the industry fell. The result of this was a lower cost base than many of its rivals, which has allowed Ramsay to develop near-monopoly status for many of its regional hospitals. This provides the company with a relatively consistent growth outlook for the long term.

Dominant position

This dominant position is boosted by the fragmented nature of the private hospital industry in Ramsay’s two key markets; Australia and France. Smaller operators find adapting to new regulations which stipulate minimum nurse/patient ratios difficult. For Ramsay, this is easier due to its size and scale advantage. In my view, this means that there is scope for Ramsay to increase its market share in Australia and France in particular.

In the UK (which makes up 10% of Ramsay’s sales), Ramsay enjoys a similarly dominant position through being one of the biggest private hospital providers to the NHS. A high return on invested capital (ROIC) from its UK operations means that an expansion of its operations is likely. The scope to do this has increased in recent months thanks to a weaker sterling.

Demographic tailwind

Participation rates for the private hospital sector in Australia have been high and stable at 48%. In my opinion, this rate will increase in future due to higher demand for hospital services from an ageing population. In 2012, Australia’s median age was 37, but by 2040 it is forecast to be 41. At the same time, Australia’s population is forecast to double by 2075, which is likely to increase demand for healthcare yet further.

Outlook

Through its brownfield development programme, Ramsay is well placed to capitalise on higher demand for its services. It approved $200 million in new brownfield capacity expansion in financial year 2016. Alongside this, its financial standing provides scope for large acquisitions. For example, its debt servicing costs were covered 6.1 times by operating profit in financial year 2016. This points to a capacity for greater leverage on its balance sheet.

Ramsay’s shares have risen by 17% this year. This puts them on a P/E of 34.5. While higher than the ASX’s P/E of 17.5, Ramsay’s EPS is forecast to rise by 35% over the next two years. Alongside its dominant position, demographic tailwind and investment strategy, I believe that this makes it a buy. It could boost your portfolio returns, just as this investor was able to do when he turned $10,600 into $8 million.

How 1 Man Turned $10K Into Over $8 Million

Discover how one man turned a modest $10,600 investment into an $8,016,867 fortune. Learn more about this man and how you can start down the path toward financial independence. Simply click here to learn more.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor Robert Stephens has no position in any stocks mentioned. 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.