CRASH: Should you buy shares of Healthscope Ltd?

Credit: Unsplash

Shares of Healthscope Ltd (ASX: HSO) have been absolutely hammered recently. Although they have managed to regain 1.3% today (trading at $2.27 per share) they are still an agonising 22.5% below their closing price from Thursday last week.

What happened to Healthscope?

It was less than one month ago that Healthscope’s shares were trading at an all-time high of $3.17, up from an offer price of $2.10 when the group listed its shares on the ASX in July 2014. At that price, they were trading on a multiple of more than 30x trailing earnings, reflecting the strong growth that had been baked into the group’s share price.

Unfortunately, Healthscope gave investors reason to doubt its growth prospects when it held its Annual General Meeting late last week. In an update to the market, it said it had experienced slower-than-expected revenue growth in its Hospitals division during the first quarter of financial year 2017.

It noted: “Various data points across the industry tell us that the average rate of hospital volume growth generally has slowed. We have seen this impact a number of our hospitals resulting in increased variability in volumes and case mix month to month in the first quarter and particularly in September. Management focus continues to be on driving revenue growth and disciplined cost control.”

It also said that earnings growth (based on EBITDA, or earnings before interest, tax, depreciation and amortisation) from its Hospitals division would be flat year-on-year if the trend for the first quarter was to continue.

Notably, shares of Healthscope rival, Ramsay Health Care Limited (ASX: RHC), have also shed more than 9% over the same period, likely reflecting investors’ concerns that Healthscope’s woes are not company-specific and, instead, apply to the industry as a whole.

Should you buy?

Healthscope was looking pricey when it traded above $3 per share, but now that it has cooled down it’s worthy of a closer look. That said, the shares are still trading on a price to earnings ratio of almost 22x last year’s earnings, which isn’t a bargain if slower growth does become more commonplace for the private hospital operator. This is something prospective investors should bear in mind.

Discover How 1 Man Made 100x His Money After 50

Few know, that as Warren Buffett blew out the candles on his 50th birthday cake, he had just 1% of his current fortune. Think about it: At an age when most give up hope, Buffett was just getting started on the remaining 99% of his fortune. Goes to show you that it's never too late for you to potentially get rich. Which is why we've gathered the strategies we learned from Buffett, distilled them down to 11 simple lessons, and put it in an exclusive report for you to claim. Just click here to learn more about this handy investing guide.

Motley Fool contributor Ryan Newman 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.