Although the Ramsay Health Care Limited (ASX: RHC) share price has now climbed 10% since hitting a 52-week low of $51.89 in the middle of October, it is still down significantly over the last 12 months.
During this time the private hospital operator’s shares are down approximately 18%.
Is the Ramsay Health Care share price in the buy zone?
Whilst I think that Ramsay Health Care is one of the highest quality companies on the Australian share market along with the likes of healthcare sector peers CSL Limited (ASX: CSL) and ResMed Inc (ASX: CSL), the tough trading conditions that it continues to face means it is a little too soon for an investment for me.
The recent acquisition of Capio AB could be a boost to its growth in the long term and could open the door to further bolt-on acquisitions in Scandinavia, but it isn’t expected to contribute in the near term. Management recently advised that the acquisition is expected to have a neutral impact on its earnings in FY 2019.
As a result, Ramsay Health Care continues to target core EPS growth of just 2% this year.
Unfortunately, with the tough trading conditions it is facing showing little sign of easing, I suspect that growth in FY 2020 could be equally challenging for the company.
I feel this makes the company’s shares reasonably expensive at 22x earnings and see more value elsewhere in the sector with the likes of CSL and ResMed.
Although both shares trade at a notable premium to the market average, I believe their growth profiles go some way to justifying this.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited and Pro Medicus Ltd. The Motley Fool Australia has recommended Ramsay Health Care Limited and ResMed Inc. 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.