Is the Ramsay Health Care Limited (ASX:RHC) share price a buy?

The Ramsay Health Care Limited (ASX: RHC) share price is currently sitting at around $55, meaning it has fallen by over 25% in the past 12 months.

Ramsay is Australia’s largest private hospital operator and one of the largest in the world with major operations in France and the UK as well.

Over the past 20 years Ramsay has been one of the highest quality shares on the ASX. But it has certainly fallen out of favour.

Private health insurers like NIB Holdings Limited (ASX: NHF) and Medibank Private Ltd (ASX: MPL) have been increasing premiums at a faster rate than inflation or wage growth. That could only go on so long before it became unaffordable for many of Australia’s younger policyholders.

But, it’s the younger & healthier people who are subsidising the older policyholders who claim the most from the insurers.

The less people there are in the private system the worse it becomes for private hospital operators like Ramsay. Private health insurance is essentially private hospital insurance, unless you have extras.

It doesn’t seem as though the issue is going to fix itself any time soon. A growing elderly population should be good news for Ramsay over time, but unless they’re in the private system they’re unlikely to use a private hospital. Plus, Labor have suggested they will limit private health insurance premiums to, at most, roughly inflation increases. This may win votes but it’s unlikely to solve the overall problem. It could put more strain on the public system.

Ramsay may also indirectly suffer from the fallout from surgeons supposedly overcharging.

If that wasn’t bad enough, the UK and French operations are also going through a bit of a rough patch. It’s easy to see why Ramsay is trading at almost the lowest price/earnings ratio in a number of years.

But, there are some silver linings:

The ageing population should still be a supportive tailwind.

Ramsay is continually investing in new hospitals or upgrading its current facilities.

It’s working on a large joint venture procurement business which could be a major earner over time in the US due to the cost of healthcare in the country.

Ramsay is also looking at acquiring a business in another country. It lobbed a bid for Swedish healthcare business Capio AB, but that was unsuccessful. It could also expand into Asia.

Foolish takeaway

Ramsay is currently trading at 18x FY19’s estimated earnings. If you’ve been thinking about buying Ramsay shares then now could be a decent time to buy some and buy more on further price weakness. I’m waiting for the price to drop to around $50 before buying more as I don’t believe there will be a positive catalyst any time soon.

One share I am very close to buying is one of these hot stocks which is also leveraged to the ageing population tailwind.

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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia has recommended NIB Holdings Limited and 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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