Here's why investors should avoid Medibank Private Ltd

Medibank Private Ltd (ASX:MPL) has been one of the best financial stories of 2014, but can it repeat the tale in 2015?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

$2.43.

That's the price tag on the shares of Medibank Private Ltd (ASX: MPL) right now, reflecting a massive 21.5% paper profit for those 'mum and dad' investors who bought into the IPO hype and have held on until now.

In fact, in the space of just over one month, the health insurer has increased more than 16 times the amount as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the entire year. Since the beginning of 2014, the benchmark index has risen just 1.3%, not including dividends.

Indeed, it's been a fantastic result for shareholders with the stock having proven many critics wrong – myself included. Although the shares are firing on all cylinders however, I'm still critical of the stock's current price. While I thought $2.00 was a high premium to pay, I certainly wouldn't entertain the idea of buying them now – at least not until they fell back in price considerably.

While Medibank is a high quality business, it needs to heavily reduce its costs and improve its margins to justify its high share price. In this low interest rate environment, I wouldn't mind a higher dividend yield as well. Although Medibank could continue to climb higher, I believe there are a number of other stocks trading at more compelling prices right now which could deliver far greater gains over the coming years.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »