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Ramsay Health Care Limited (ASX:RHC) shares hit a 2-year low: Is it time to invest?

Although in afternoon trade it has edged into positive territory, this morning the Ramsay Health Care Limited (ASX: RHC) share price dropped to a two-year low of $61.03.

This meant the private hospital operator’s shares had fallen 20% from their 52-week high of $76.18.

Is now the time to buy Ramsay Health Care’s shares?

This decline means that Ramsay Health Care’s shares are now changing hands at just under 22x estimated full-year earnings.

While this is a significant discount to its average of 30x earnings over the last three years, it is actually still a premium to its 10-year median earnings multiple of 19x earnings.

Because of this, I’m not in a hurry to snap up its shares just yet. In fact, I think if you are patient enough you could get them at a much cheaper price down the line, especially if its full-year results are as weak as its half-year results.

In the first-half of FY 2018 the company’s European operations weighed heavily on its performance. EBITDAR (operating profit before rent) fell 4.6% in the UK and 5.8% in France.

This offset a solid performance from its Australia/Asia segment, resulting in group earnings before interest and tax rising just 1.5% to $470.4 million.

Unfortunately, it doesn’t look like an immediate turnaround in the fortunes of its UK and France operations is on the cards, which could stifle the group’s full-year growth.

But in addition to this, judging by the recent trading update from rival Healthscope Ltd (ASX: HSO), I think there are signs that its Australian operations could also be experiencing tough trading conditions.

Earlier this month Healthscope downgraded its earnings guidance due to softer than expected market conditions. Instead of flat Hospital Operating EBITDA, it now expects a decline of between 4% and 5.5% year-on-year.

This downgrade didn’t come as a great surprise to me. After all, private hospital insurance coverage has just fallen to its lowest level in almost seven years on the back of affordability issues.

In light of this, I’ll be more surprised if Ramsay Health Care hits its guidance this year, than if it doesn’t. As a result, I would suggest investors stay clear of the company for now and wait for its results before considering whether to invest or not.

Instead of Ramsay I would be buying these top growth shares which have the wind in their sails right now.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 Scott Phillips.

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