Earlier today I explained that the healthcare sector has been one of the best performing areas of the market over the last 12 months with a gain of almost 24%.
This gain could have been even bigger if the performance of the Ramsay Health Care Limited (ASX: RHC) share price had not acted as a drag on the sector.
Over the last 12 months the private hospital operator's shares have underperformed both the market and the healthcare sector with a decline of 6.5%. This has left its shares trading within sight of their 52-week low.
Is it time to buy Ramsay Health Care shares?
I don't think it is. I have been bullish on Ramsay in the past but was very disappointed with its performance during the first-half of FY 2018.
For the six months ended December 31, Australia's largest private hospital operator posted core net profit after tax of $288 million on revenue of $4,400 million. This was a 7.5% and 3% increase, respectively, on the prior corresponding period.
While its local operations performed well, its UK and France operations both underwhelmed once again.
UK revenues fell 4.8% to £206.2 million and earnings before interest, taxes, depreciation, amortization, and restructuring/rent costs (EBITDAR) was down 4.6% to £49.4 million.
Over in France the company saw revenues fall 1.1% to €1,100 million, with EBITDAR falling a sizeable 5.8% to €194.1 million.
I'm not overly optimistic that conditions in either of these markets are about to become any better in the near term, which could lead to them dragging on its overall performance for some time to come.
In addition to this, with private health insurance participation levels falling as prices rise, I fear that private hospital operators like Ramsay may have to work with the likes of NIB Holdings Limited (ASX: NHF) to make insurance more affordable. This could potentially mean giving up a bit of margin.
Overall, I just don't think that Ramsay is in a position to grow earnings at the high rate we have become accustomed to. This could mean its shares are quite pricey at 27x trailing earnings.
Instead of Ramsay I would suggest investors gain exposure to the healthcare sector through biotherapeutics titan CSL Limited (ASX: CSL).
