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Japara Healthcare Ltd (ASX:JHC) and the rest of the aged care providers rebound: Time to buy?

On Monday some of the worst performers on the Australian share market were the aged care providers.

Their shares were crushed after Prime Minister Scott Morrison announced that the government would be launching a much-needed Royal Commission looking into bad practices in the sector.

The selloff was not a surprise following the Royal Commission into the financial services industry which saw many of our biggest banks such as Commonwealth Bank of Australia (ASX: CBA) go through a painful de-rating.

The good news, though, for many aged care provider shareholders is that the market appears to think that yesterday’s selloff was a bit of an overreaction and their shares have rebounded strongly today.

Here is the state of play in late morning trade:

The Aveo Group (ASX: AOG) share price is up 4% to $2.13.

The Estia Health Ltd (ASX: EHE) share price has risen 4.5% to $2.51.

The Japara Healthcare Ltd (ASX: JHC) share price has jumped 6.5% to $1.48.

The Regis Healthcare Ltd (ASX: REG) share price is up over 6% to $3.19.

Should you be buying the dip?

While the shares of these aged care providers are trading on low multiples and could be worth considering, I’m not ready to make an investment just yet.

I’m concerned that the aged care Royal Commission could hit one of these companies hard like the financial industry inquiry did to AMP Limited (ASX: AMP) shares.

The financial services company’s shares looked dirt cheap after a massive decline in April following an appearance at the Commission, but have fallen by a further 20% since the end of that month and show no signs of recovering any time soon.

Because of this, if I still owned shares in these companies I would be looking to take advantage of this share price rise by selling shares today.

I would then look to reinvest these funds in this buy-rated star share.

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Motley Fool contributor James Mickleboro 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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