It’s been a topsy-turvy year for shareholders of private hospital operator Pulse Health Limited (ASX: PHG). The company’s shares are down 21% for the year despite rising 30% last week on the back of a takeover offer from Healthe Care Australia.

The offer, of 47 cents per share in cash, is non-binding and indicative as well as subject to due diligence, which most likely explains why Pulse’s share price remained at only 41.5 cents at the close on Friday.

A Tough Year

As is so often the case, the takeover offer has come after a year where operational performance suffered and pushed the share price lower. Pulse’s share price plunged 30% in a day back in May when management downgraded 2016 earnings guidance by up to 20%.

The shares fell as low as 20 cents, having previously traded as high as 70 cents back in 2014, before recovering significantly to the low-30’s in August when earnings came in at the high end of the revised guidance.

Where to from here?

Pulse made a number of acquisitions in the last 12 months to take its number of sites to 13 – including eight hospitals and five day surgeries across Australia and New Zealand. Being much smaller than Ramsay Health Care Limited (ASX: RHC) and Healthscope Ltd (ASX: HSO) means that operational issues at individual sites will impact earnings more than the big boys – making it a riskier investment.

Prior to the offer, Pulse was forecasting an increase in earnings before interest, tax, depreciation and amortisation (EBITDA) from $9.1 million in 2016 to $13.5 million in 2017. If the takeover doesn’t proceed then the share price will probably fall, but investors will be left with a private hospital operator poised to grow earnings strongly, while there could be another 10-15% upside in share price if the takeover does go ahead.

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Motley Fool contributor Andrew Mudie 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.