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Here’s why Ramsay Health Care Limited is a ‘forever’ stock

Leading private hospital operator Ramsay Health Care Limited (ASX: RHC) held its Annual General Meeting on Thursday and shareholders had the opportunity to reflect on the extraordinary growth this company continues to achieve.

In FY 2014 revenue grew 17.6% to $4.9 billion, core earnings per share (EPS) jumped 20.6% to 163.9 cents per share (cps) and the fully franked dividend was increased by 20.6% to 85 cps.

Ramsay has now been operating in the private hospital industry for 50 years and over those five decades the group has grown into one of the five largest private hospital operators in the world. Today, the group runs 212 hospitals across five countries, offering 25,000 beds and places to approximately 2.5 million patients per year!

Stock picking matters

While identifying an investment theme for your portfolio such as an aging population is worthwhile, the reality is that a theme alone is unlikely to provide outperformance in the long run.

The performance of Ramsay over the past decade highlights to investors exactly why smart stock picking can make all the difference.

Consider two of Ramsay’s larger peers in the health care sector – Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY). Over the past decade Sonic’s share price has gained 68.3%, while Primary’s has actually fallen 34.5%. Meanwhile, the low risk option of just holding the S&P/ASX 100 (Index: ^A XTO) (ASX: XTO) has provided price gains of 44.7%.

In contrast, Ramsay has smashed all of these options with a gain of 689.9%!

Including dividends the outperformance of Ramsay against the accumulation index is equally astounding. The Total Shareholder Return (TSR) compound average growth rate (CAGR) of Ramsay since it listed on 23 September 1997 at $1.85 a share is 25.95%. By comparison, the S&P/ASX 100 Accumulation Index has produced a TSR CAGR of 8.8% over the same period.

Don’t ever let it go!

It’s rare to find a stock that has the ability to provide such superb returns to shareholders and to grow at such strong rates for so long, for these reasons alone, shareholders would want to be wary of ever selling the stock. The old maxim to ‘let your profits run’ appears particularly relevant here!

While the stock price is certainly at lofty levels, with an expanding leadership position in France and growth in Asia including China, coupled with management providing guidance for core EPS growth of between 14% and 16% in FY 2015, Ramsay could well turn out to be a ‘forever’ stock in your portfolio.

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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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