As they hype surrounding Medibank Private Ltd's (ASX: MPL) $5.7 billion float wore off, the stock plummeted from a record high in February to a record low last week, but Bell Potter believes the market may have overreacted.
Investors have been offloading their shares ever since the health insurer delivered its interim results earlier in the year, unhappy with management's efforts to reduce costs and improve overall productivity, whilst also questioning its strategy moving forward.
Some analysts have also questioned Medibank Private's ability to meet prospectus guidance on earnings next year, suggesting that consumers could switch over to rival insurance providers offering more competitive products.
But Bell Potter's John Hester has taken an alternate view, upgrading his recommendation on the stock from a "hold" to a "buy". Medibank's shares responded well to the upgrade, climbing 2.4% yesterday to $2.10, up from a recent low of $2.03.
Although Medibank's shares have fallen considerably since February, there are still a number of reasons why investors should think twice before investing in the stock.
In my opinion, while Medibank Private is a quality business, it does not present as good value for long-term investors at its current price and would be better served on your long-term watchlist in case its price falls any further.
