Is Medibank Private Ltd a buy at this share price?

Medibank Private Ltd (ASX: MPL) has seen its share price sink from a 52-week high of $3.32, down to the current price of $2.57.

Still, the private health insurer has seen some small recovery in its share price from a low of $2.06 in December 2015.

The share price plunged in mid-August as the chart below shows, falling from around $3.00 to $2.70, despite reporting a bumper profit.

medibank share price chart

Source: Yahoo Finance

Declining customer numbers, falling market share and existing customers downgrading their insurance cover were all raised as issues.

While CEO Craig Drummond acknowledged these issues, there’s still plenty of work for the insurer to turn around those trends.

At the current price of $2.57, and with earnings per share of 15 cents, Medibank is trading on a P/E ratio of around 17x, and the dividend of 11 cents puts the company on a trailing dividend yield of 4.3% – fully franked.

Analysts are forecasting just a modest rise in earnings next financial year and in FY2018 as well suggesting that the health insurer’s shares are moderately-to-expensively priced. However, some investors may well see this as a buying opportunity.

Foolish takeaway

Despite its higher P/E ratio of 20x, NIB Holdings Limited (ASX: NHF) appears to represent much better value thanks to its better potential future growth.


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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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