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Sonic Healthcare share price hits 52-week high: is it a buy?

The Sonic Healthcare Ltd (ASX: SHL) share price has fallen lower this afternoon after reaching a new 52-week high at market open.

What happened to the Sonic Healthcare share price?

The Sonic Healthcare share price surged higher at the start of the day to $28.66 per share despite the S&P/ASX 200 (INDEXASX: XJO) index opening lower.

Sonic Healthcare has delivered solid returns for its investors so far this year, with the company’s share price climbing 29% since the start of January to outpace the ASX 200 performance over the same period.

The Aussie healthcare sector has been a strong performer this year with many of the top-performing ASX 200 shares comprising the likes of Nanosonics Ltd (ASX: NAN) and InvoCare Limited (ASX: IVC).

Is Sonic Healthcare in the buy zone?

The medical imaging and pathology group has performed strongly so far this year, but what’s the catch?

Sonic Healthcare’s strong share price performance has been built on a platform of strong earnings, starting with the company’s strong half-year results and upgraded full-year guidance in February.

Strong organic growth in Sonic Healthcare’s laboratory markets and operations segments saw the company post first-half revenue of $2.9 billion, up 9% 1H 2018.

Sonic also reported a 7% year-on-year (YoY) increase in net profit after tax (NPAT) of $223 million and increased its interim dividend to 33 cents.

Sonic lifted full-year guidance for its earnings before interest, tax, depreciation and amortisation (EBITDA) by 8%, in comparison to EBITDA of $962 million the year prior.

Foolish takeaway

Sonic Healthcare trades at a reasonable price-to-earnings (P/E) ratio of 26.2x earnings, but I still think that’s a little on the high side given the ASX 200 average of approximately 17x.

Sonic is a solid dividend stock that currently yields 3% per annum, but I think the company’s August full-year results will be the real kicker for investors.

If Sonic Healthcare can post solid earnings growth and deliver on its upgraded guidance and recent acquisition, I’d expect to see the Sonic Healthcare share price push beyond the $30 barrier by the end of August.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. The Motley Fool Australia has recommended InvoCare Limited and Sonic Healthcare 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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