The Ramsay Heath Care Limited (ASX: RHC) share price has risen roughly 6% since bouncing off its multi-year low of around $57 a couple of years ago.
Perhaps this means Ramsay has seen the worst of it and it's now a buy?
There are a lot of reasons why Ramsay could be a really good long-term investment at the current price. It has very defensive earnings due to the nature of healthcare – the latest GDP number doesn't decide if someone is sick or injured.
Ramsay should be a beneficiary from Australia's ageing population. The older people get the more likely they are to need a hospital visit – the baby boomer generation reaching retirement age means that the number of over-65s is projected to increase by 75% over the next two decades.
It's investing heavily into expanding current hospitals and building new ones, which should mean more growth for Ramsay over time. It is planning to grow into another geographical location like North America or China. It's starting a large joint venture chain to save on costs.
So, what's not to like?
There are also several reasons to be bearish about the current Ramsay share price. In its most recent result Ramsay revealed that both its UK & French operations were suffering and the return of profit growth isn't expected in the second half of the year.
The private health insurance industry is having a really tough time balancing premium rises, costs paid to health providers like Ramsay, profit and government & policyholder expectations. The lowest premium rise in years means Ramsay may also suffer from this.
Indeed, there is a worry that more people will leave the private health system making it even more expensive for the people that remain.
Ramsay has proven to be a good operator because its Australian segment is growing profit whilst Healthscope Ltd (ASX: HSO) is suffering. Healthscope has just announced it is closing underperforming hospitals. Supposedly the Geelong Hospital closure was because of non-for-profit (NFP) private hospital operator Epworth. NFPs could cause an issue for Ramsay if they become big enough.
A rising interest rate could hurt defensive shares because those businesses now have less appeal. Ramsay is one of the most defensive shares on the ASX.
Finally, Ramsay is trading on a price/earnings ratio of around 20. This has reduced, along with the share price. But HCA Healthcare Inc, the USA's biggest hospital operator, also is exposed to the ageing tailwinds yet its p/e ratio is only 13. Does Ramsay deserve to trade at such a big premium when it's only growing core earnings at single digits?
Foolish takeaway
I want to buy more Ramsay shares because it's trading at the most attractive value for several years, but it's facing headwinds that could send the profit and share price down further.
If Ramsay can work through the affordability issue then it could be a very good long-term buy today. However, I have a feeling the share price could drop lower later this year – so I'm going to wait until at least August until I can see the full-year result.
