Up 20% in 5 months: Is the Ramsay Health Care share price a buy?

For the Motley Fool Australia writing team’s Top ASX Stock Picks for March, I outlined why I believe Ramsay Health Care Ltd.  (ASX: RHC) is a fantastic stock to own for the long term. The Ramsay share price is up nearly 12% since the start of 2019 and over 20% since October 2018.

So, is now a good time to buy Ramsay shares?

Ramsay Healthcare Ltd. is Australia’s largest private hospital manager, with over 220 hospitals and more than 60,000 staff across Australia and several other countries. Ramsay has been expanding its presence in Europe in particular, which, due to the rapidly ageing population, is becoming a highly lucrative market.

Ramsay has historically enjoyed strong returns on invested capital due to its ownership and operation of leading private hospitals in Australia and with these, a reputation for high-quality care. Its scale also enables them to negotiate very effectively with private health insurers, which gives it enormous pricing power. This has enabled Ramsay to establish a significant cost advantage, which has underpinned its successful expansion both in Australia and overseas.

Ramsay has been facing some difficult structural problems going into 2019. Analysts were expecting core EPS growth of only 2% for the financial year, mainly due to some recent acquisitions that have yet to prove profitable for the company. The recent gains in share price were partly the result of Ramsay exceeding these expectations in its half-year results, with a 9.6% rise in profits to $270.4 million.

The sharp rise in Ramsay’s share price proves the merit of taking a longer-term view than the market sometimes takes. Demographics are a tailwind for healthcare stocks like Ramsay. Our ageing population (and across the developed world) and the subsequent rising demand for medical services bodes well for the healthcare sector, which has been one of the strongest performers on the ASX over the past decade. Stocks such as CSL Limited (ASX: CSL) and NIB Holdings Limited (ASX: NHF) as well as Ramsay have delivered above-market returns to investors willing to take this long-term approach.

Foolish takeaway

I believe investing in the healthcare sector is a vital part of a 21st-century portfolio. With quality stocks like Ramsay Health Care, I would put them on my watchlist and wait for a decent buying opportunity, like we saw recently in October. No one will deny the demand for medical services will continue to rise, and this will reward the patient investor.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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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