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Why Regis Healthcare Ltd should be on your watch list

Regis Healthcare Ltd (ASX: REG) listed its shares on the Australian Securities Exchange in October last year and has generated fantastic returns for initial shareholders in the time since.

Although the stock has retreated from a high of $6.10 in March to trade at just $5.38 today, it has still risen 40% since its debut at $3.85. That compares to a 4% return from the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), and a return of 27% and 11% from rivals Estia Health Ltd (ASX: EHE) and Japara Healthcare Ltd (ASX: JHC) in the same time (respectively).

As an owner and operator of 47 aged care facilities located around Australia (with a total of 5,049 operational places at 94.4% occupancy rates, as at 31 December 2014), Regis is well positioned to benefit from Australia’s growing and ageing population – a trend that could result in strong growth for the healthcare sector in the years and even decades ahead.

In addition, Regis is on track to beat its prospectus forecast for revenue and earnings before interest, tax, depreciation and amortisation (EBITDA), having upgraded its EBITDA and net profit after tax (NPAT) guidance by 5-10% in February this year. Meanwhile, it also had a net cash position of $72.9 million as at 31 December with no debt, making it a compelling play for long-term investors.

Regis is thus well positioned to execute its growth strategy (i.e. continue developing multiple greenfield sites per year whilst also making single site acquisitions), and certainly appears worthy of a position on your watchlist. Before making a final investment decision however, investors should look into its two smaller rivals, Japara and Estia.

Japara and Estia both maintain strong balance sheets as well, with Japara looking particularly compelling with a price-earnings multiple of 23.1x forecast earnings. Notably, Japara boasts a market capitalisation of $0.7 billion (compared to Regis’ $1.6 billion market cap), while it shares the same occupancy rate (94.4%) across 39 facilities spread throughout Australia.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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