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Why the Medibank Private Ltd share price fell today

The Medibank Private Ltd (ASX: MPL) share price has come under renewed pressure today. More than 15 million shares changed hands as the share price fell 2.7% compared to the broader S&P/ASX 200’s (Index: ^AXJO) (ASX: XJO) 1.4% decline.

So What: Medibank Private listed its shares on the ASX in November 2014 in what was one of the most celebrated initial public offerings (IPOs) in recent memory.

While the shares got off to a shaky start, the share price jumped strongly in August following an encouraging trading update and went on to record a high of $2.55 in October. Since then however, they have resumed their retreat and are once again trading 15.3% lower at $2.16. That represents an 8% capital gain for those retail investors who bought into the float just over a year ago.

Indeed, there are plenty of reasons to like Medibank, as well as the industry itself. To begin with, Medibank is the leading health insurance provider in Australia which is experiencing a growing and ageing population.

In such a system however, you can’t expect there to not be any competition. NIB Holdings Limited (ASX: NHF) is Medibank’s only publicly-listed competitor but Bupa and HCF also control a significant portion of the market.

At a time where consumer confidence is falling, consumers will typically go for the cheapest health insurance they can get whilst also ensuring they receive adequate cover. Medibank’s own discount insurance brand, AHM, is gaining market share, which is great except for the fact that growth is coming at least partially at the expense of the premium Medibank brand itself, which could impact margins in the future.

Now What: Medibank Private might be the biggest health insurer in the country, but it’s facing plenty of strong competition as well. Investors should keep an eye on the company’s ability to continue cutting costs and improving efficiencies to ensure it can offer customers a more competitive rate. If the company can prove its ability to continue growing earnings on a per share basis, then Medibank Private could be worth keeping your eye on.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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