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Ramsay Healthcare Limited shares jump 3% — quality doesn’t come cheap

Shares in Ramsay Healthcare Limited (ASX: RHC) have jumped 3% higher to trade at $39, close to a 52-week high.

Healthcare shares are on a roll today, with Mesoblast limited (ASX: MSB) shares trading 4% higher at $6.33.

Ramsay is a quality growth company, a fact that hasn’t gone un-noticed with the Australian investing public.

Ramsay, which owns and operates private hospitals around the world, recently reported a 5.5% increase in revenues to $4.2 billion and a 15.1% jump in core net profit after tax (NPAT) to $290.9 million.

For a company with a market capitalisation of close to $8 billion, the 62% increase in its share price over the past 12 months is nothing short of sensational.

But, this could be about as good as it gets. Ramsay now trades on a forward P/E of 25 and a forward dividend yield of just 2%.

Given the company’s continued growth prospects, and the quality of its earnings, Ramsay deserves to trade at a premium to the market. After all, fellow healthcare high-flier CSL Limited (ASX: CSL) has long traded at a premium valuation, and despite analysts forecasting very modest growth in 2014, that company still trades on a forward P/E of 26. But, as investors in Cochlear Limited (ASX: CPH) will attest, if growth falters for these premium-priced stocks, there isn’t much in the way of downside protection for shareholders.

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