Medibank Private Ltd (ASX: MPL) delivered its first interim earnings results as a listed company late last month, confirming that it was on track to meet its full-year earnings guidance, whilst also taking the knife to management costs through the period.
While the stock fell sharply immediately following the report; it has since recovered to trade at $2.53 – just 6 cents below its all-time high. It's possible that one reason behind the stock's resurgence is that the insurer's directors have been gradually increasing their stake in the business recently.
Medibank's CEO George Savvides, for instance, has purchased 72,300 shares in the last week alone, giving him a total of 122,000 shares worth $308,660. Meanwhile, David Fagan recently purchased $60,650 worth of shares, giving him a total stake worth just under $76,000.
It's always a good sign when executives are buying shares in their own company. Not only does it reflect their confidence that the business is headed in the right direction, it also aligns their interests with those of all shareholders, ensuring they will do their best to maximise overall returns.
Despite their confidence however, Medibank still presents as an expensive investment prospect. In fact, as quoted by the ABC, UBS analysts initiated coverage on the stock with a 'sell' rating, saying that: "In simple terms, this reflects our view that the share's post-IPO performance appears to have captured virtually every positive theme but no negative ones."
Should you buy Medibank Private?
While it could be argued that health insurers such as Medibank Private, BUPA and NIB Holdings Limited (ASX: NHF) will benefit from Australia's ageing population, you also need to look at it from the other side of the equation.
Private hospitals operators such as Healthscope Ltd (ASX: HSO) and Ramsay Health Care Limited (ASX: RHC) are also gunning for higher patient claims in order to boost their profitability, which would therefore mean greater expenses for the insurers themselves. While Medibank Private is hard at work trying to improve those efficiencies, the improvements certainly won't occur overnight, making today's price of $2.53 look quite exuberant.
At that price, the stock is trading at 27.3x last year's earnings which compares to the S&P/ASX 200 Index's (Index: ^AXJO) (ASX: XJO) average price-earnings ratio of roughly 14x. While the stock could continue to rise in the near-term, it could struggle to deliver market-beating returns in the long run making it a stock for capital-F Foolish investors to avoid.
Besides, there are plenty of other great investment opportunities presenting themselves right now, even with the ASX-200 hovering at a seven-year high. The Motley Fool's top analyst has recently named his BEST dividend stock for 2015 which could be a fantastic buy in today's low interest rate environment.
