The Sigma Healthcare Ltd (ASX: SIG) share price has shed 4% in early trade to $0.53 per share at the time of writing – is it time to buy the company’s shares?
Why are Sigma Healthcare shares trading lower?
Sigma shares have shed 2.5 cents per share (cps) this morning as the company’s shares begin trading ex-dividend from today.
The company paid a 2 cps dividend to investors today which translates to an impressive 6.4% dividend yield at its current valuation. Having said that, the company is a better value play than growth and is trading at just 14.6x earnings at the moment.
How has Sigma Healthcare performed against its peers?
The Sigma share price plummeted 39.5% in one day to $0.49 per share in July 2019 following a trading update and revised FY19 guidance.
The pharmaceutical company announced that its My Chemist/Chemist Warehouse Group contract would be terminated in June 2019 and the two groups could not agree to a contract extension.
Sigma also announced revised guidance of underlying earnings before interest and tax (EBIT) of $75 million on softer market conditions.
With a market cap of $583.7 million, Sigma’s most comparable ASX peer company is Estia Health Ltd (ASX: EHE) with a $697.1 million.
The Estia share price has climbed 19.6% higher in 2019 but remains down 20% in the last 12 months and 40.4% lower in the last 5 years.
Despite the strong tailwind of an ageing population and longer life expectancies in Australia, the healthcare sector remains under pressure in the short-to-medium-term.
The ongoing Aged Care Royal Commission is putting the spotlight on the healthcare sector more broadly and the cost structure involved in healthcare has created some profitability headaches for some of Australia’s largest healthcare providers.
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Motley Fool contributor Lachlan Hall 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.