Should you buy Medibank Private?

With just three days left to get your application in, should you grab some Medibank Private shares?

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With just three days remaining before applications will close for the Medibank Private IPO, I expect there will be a number of investors still weighing up their options. On the one hand, retail investors who buy in could make a nice 'stag' profit on the day of the float. On the other, they could be overpaying for a good (but not spectacular) business.

Given the enormous level of excitement surrounding the business, it is looking increasingly likely the shares will open above the indicative price range, currently set between $1.55 and $2.00. As reported by Fairfax media, a pre-listing shadow market operated by IG Markets even has the share price sitting at $2.15 currently. With the price capped at $2.00 for retail investors, a nice profit could be made on day one.

Despite that lure of a potentially quick gain however, I've decided to sit this one out. As a long-term focused investor, I'm quite cautious of the price some investors are clearly willing to pay and don't believe the stock is presenting as great value at the higher end of the indicative price range.

Let's assume for a moment that the shares open up at $2.00. At that price, the shares will be trading on a P/E ratio of 21.3 times forecast earnings and will be yielding just 3.5%, fully franked. That doesn't even come close to the dividend paid by Telstra Corporation Ltd (ASX: TLS).

Then, there are a number of risks to consider too, some of which are mentioned here.

Rather than partaking in the IPO itself, I'm going to play the waiting game. While I hope the shares do rise for those investors buying shares now (even though I'll be missing out on that joy), I'll be adding the stock to my watchlist and making a move should the shares fall in price in the months or years following the float.

Aside from anything else, I really don't see there being a drastic need to rush in. After all, there are plenty of other stocks on the ASX that are just as capable as Medibank (if not more so) of delivering fantastic returns over the long run.

Motley Fool contributor Ryan Newman doesn’t own shares in any of the companies mentioned.

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