Medibank Private Ltd shares rally again – Is it time to take profits?

It’s been a volatile few days for shareholders of Australia’s largest listed private health insurer Medibank Private Ltd (ASX: MPL).

After hitting a new all-time high of $3.32 on Thursday, on Friday Medibank’s shares came under selling pressure and slumped 5.5% to $3.10.

Monday morning has seen a reversal of Friday’s selling with the stock up 2.6% to $3.18.

For initial public offer (IPO) investors the decision to invest in Medibank has obviously been a great one considering shares in the float were issued at $2 thereby providing a profit-to-date of over 50%.

Likewise, nearly all investor who have acquired stock on-market post IPO are sitting on gains.

Whilst shareholders will be pleased with both the absolute returns and the significant outperformance relative to the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), the question which shareholders must now ponder is as follows:

Is it time to take profits?

Medibank’s share price has certainly run hard and currently the stock is priced on a financial year (FY) 2016 price-to-earnings multiple of 22 times (based on consensus data provided by CommSec).

That’s a hefty multiple – particularly considering CommSec’s consensus forecast shows earnings growth in FY 2017 of just under 7% – arguably implying that the stock is well-and-truly fully priced.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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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