Is it time to buy the record low Virtus Health share price?

Expectations going into Virtus Health Ltd's (ASX: VRT) results were already low but the profit announcement send its shares crashing 4.3% to a record low of $3.99 this morning.

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There isn't much good news for shareholders from Virtus Health Ltd's (ASX: VRT) first half result this morning with earnings coming under pressure despite a recovery in in vitro fertilisation (IVF) cycles for the period.

Expectations going into the results were already low but the profit announcement send VRT share price crashing 4.3% to a record low of $3.99. This takes the Virtus share price loss to around 27% over the past six months.

The IVF industry hasn't been fertile ground for investors! Rival Monash IVF Group Ltd (ASX: MVF) share price has also collapsed by over 20%.

In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has shed 4% of its value over the same period.

Unfertile ground

Virtus reported a 5.1% increase in revenue to $140.7 million for the six months to end December 2018 as demand for IVF treatment improved, although the uplift isn't flowing through to earnings with net profit from ordinary activities tumbled 13.8% to $14.9 million and earnings before interest, tax, depreciation and amortisation (EBITDA) fell 6.8% to $32.4 million.

Low cost competition from the likes of Healius Limited (ASX: HLS), the former Primary Healthcare business, took a big $900,000 bite out of EBITDA.

Technology also conspired to hurt Virtus' bottom line as specialist diagnostics revenue fell as new non-invasive pre-implantation genetic testing (PGT) grew in popularity.

Stricter regulatory requirements added to the earnings squeeze as the company had to increase supervision expenses for its diagnostics business. The change in technology and regulations shaved $600,000 off its EBITDA.

There were also some large one-off costs related to the relocation of its services to new facilities in Alexandria (New South Wales) and Hobart (Tasmania).

Earnings from its international operations increased to 20.7% of group EBITDA but there I don't know if how well received the news would be given that it's Singapore EBITDA crashed 34.4%, Ireland was below management expectations and its Danish clinics delivered a mixed result.

Foolish takeaway

Management kept its dividend flat at 12 cents per share but confidence in Virtus' outlook won't be helped by the lack of a meaningful outlook or guidance.

The stock may not look expensive and the stock is trading on a decent yield, but I wouldn't be touching the stock – at least not until I see light at the end of its dark earnings tunnel.

There are better income and growth stocks on the market that make better options than Virtus.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Monash IVF Group Ltd and Virtus Health 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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