Japara Healthcare Ltd gives IPO investors a 27.5% stag profit – what investors need to know

Freshly floated aged care operator Japara Healthcare Ltd (ASX: JHC) has surged 27.5% to $2.55 by early afternoon on Thursday after debuting on the stock market this morning. It’s an amazing immediate profit for IPO investors – otherwise known as a ‘stag profit’.

The initial public offering (IPO) was priced at $2.00 per share which equated to an expensive looking 22.6 times price-to-earnings (PE) ratio. The market however appears comfortable with ascribing a high value to Japara, with investors excited by the quality of the business and its growth potential.

From a pricing perspective, Japara is being compared with market darling Ramsay Health Care Limited (ASX: RHC). Both operate in the “high care” sector which not only can offer attractive margins but also has long-term growth opportunities.

Currently Japara operates 35 residential aged care facilities across Victoria, NSW, SA and Tasmania which combined cater to around 3,000 residents and makes the group one of Australia’s largest players in a highly fragmented industry. The potential for growth and consolidation is significant.

Foolish takeaway

Japara marks the third recent health sector IPO, all of which have proved successful. After floating at $5.68 last year, leading IVF provider Virtus Health Ltd (ASX: VRT) now trades at $7.56. Meanwhile, investors in the float of medical device distributor Lifehealthcare Group Ltd (ASX: LHC) received stock at $2.00 which now trades at $2.24.

The health care sector is renowned for producing high quality, high margin businesses. These types of companies are definitely worth keeping on your watchlist.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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