Although the S&P/ASX 200 Health Care (Index: ^AXHJ) (ASX: XHJ) has climbed 14% year-to-date, not all healthcare shares have been able to follow the index higher.
In fact, the two healthcare shares listed below have been amongst the worst performers on the market this year. Has this created a buying opportunity?
Australian Pharmaceutical Industries Ltd (ASX: API)
This leading pharmacy chain operator and distributor is the company behind the popular Priceline retail brand. Its shares are down 35% year-to-date due largely to a disappointing market update in August.
In its half-year results announcement in April management advised that it expected profit growth of a minimum of 10% on FY 2016's result. Unfortunately, this was revised down to profit growth of 5% in August due to a weakening consumer sentiment.
By my calculations, this means its shares are now changing hands at a little under 13x estimated full-year earnings and provide a trailing fully franked 4.9% dividend. If retail conditions improve, I think Australian Pharmaceutical Industries could prove to be a bargain buy. I'll be watching its full-year results release very carefully next month.
Monash IVF Group Ltd (ASX: MVF)
The shares of this fertility treatment company are down 32% so far in 2017. Monash IVF's shares have come under significant pressure this year following the emergence of a low-cost competitor and the departure of Dr Lynn Burmeister.
While the latter is not expected to impact Monash IVF this year, management has warned that there is potential for a high single-digit percentage decline in net profit after tax in FY 2019 when her non-compete period expires.
Although at 11x trailing earnings Monash IVF looks dirt cheap, if its earnings do slide backward next year then it could end up being a value trap. Because of this I would suggest investors hold off an investment and wait to see how management intends to offset the potential decline in earnings.
