Is Primary Health Care Limited’s (ASX:PRY) 8% fall a buying opportunity? 

Primary Health Care Limited (ASX: PRY) fell 8.29% yesterday after UBS changed its buy rating to a sell.

UBS cited earnings headwinds, but is one opinion worth a fall of this size and is there value in Primary Health Care shares as a result? 

Primary Health Care is a service company for medical and related services, as well as a day-care surgery operator. Yesterday’s tumble was another instalment in a share price history that favours timing the market, rather than time in the market. 

Since 2008, the share price has fallen from $5.84 to $2.82 in 2012 before recovering to $5.22 in 2015. The price then took a dive, losing 47% of its market capital in 8 months before a sharp bounce back to near $4 levels before yesterday’s fall. 

The sporadic share price performance of Primary Health Care is somewhat mirrored in the net profit figures. Whilst unpredictable from year to year, Primary Health Care has returned $2.55 in earnings per share in the last 10 years, whilst paying out $1.65 of that as fully franked dividends for all but two years. 

Based on these figures, Primary Health Care has retained $0.90c in profits and improved Net Tangible Assets per share from negative $3.11 to negative $1.18. 

Negative Net Tangible Assets is some cause for concern. Additionally, the debt to equity ratio is currently 0.47:1 and with a current P/E ratio of 21, investors should expect some nice growth to negate these added risks. 

By 2020, Primary Health Care is expected to earn $0.22c per share whilst paying out $0.14c in dividends. If you were to buy on the beaten down price of $3.54, you would be locking in a forward P/E ratio of 16 and a dividend yield of 4%. 

Given the net tangible asset position, presence of debt and absence of probable and significant growth, the recent UBS downgrade is a fair assessment. 

Foolish takeaway

Whilst I believe the healthcare sector is poised to grow, I’m of the opinion that value can be found elsewhere.  

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Motley Fool contributor Matt Breen has no position in any of the 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 Scott Phillips.

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