The Ramsay Health Care Limited (ASX: RHC) share price jumped 3.6% higher last week but is it a good buy in the ASX healthcare sector?
What does Ramsay Health Care do?
Ramsay Health Care is a private healthcare provider with operations across Australia, Europe and Asia. The company was founded in Australia in 1964 and now employs more than 77,000 staff. Ramsay delivers a range of health care from primary care through to highly complex surgery, mental health care and rehabilitation.
What’s been happening in the last few months?
It’s been a big 6 months for the Ramsay Health Care share price and the company’s investors. The ASX healthcare provider was one of the harder hit shares in the February/March bear market, falling 42.2% in the space of a month to a 52-week low of $46.12 per share.
The coronavirus pandemic spooked investors generally but many sold out of the healthcare sector in particular. Fears of hospitals being overrun with COVID-19 patients had many nervous that Ramsay would struggle to maintain operations in 2020.
This hasn’t proven to be the case, however, and the Ramsay Health Care share price has since bounced back to $66.41 per share. But us long-term investors can’t afford to look exclusively in the rear-vision mirror. So, what else could make Ramsay a good value buy this year?
How strong are the company’s financials?
Ramsay Health Care released its half-year earnings on 27 February for the year ended 31 December 2019. All in all, I thought it was a solid result from the ASX healthcare share. Group revenue climbed 22.5% to $6.3 billion. This was led by strong results from its Australia/Asia, United Kingdom and Continental Europe segments.
Earnings before interest, tax, depreciation, amortisation and restructuring/rent costs (EBITDAR) surged 17.4% to $1.1 billion. Meanwhile, net profit after tax climbed 3.4% on a like for like basis to $273.6 million. These figures were excluding the contributions of Capio AB, the Swedish healthcare company acquired by Ramsay in 2018.
How does the Ramsay Health Care share price compare to its peers?
Despite a recent recovery, the Ramsay Health Care share price remains down 7.8% in 2020 but is still outperforming the S&P/ASX 200 Index (ASX: XJO). The company’s shares currently trade at a price to earnings (P/E) ratio of 25.7 with a 2.30% dividend yield.
By itself, that’s not necessarily a bad thing, particularly given the potential for short-term growth in healthcare demand. In terms of its peers, the Healius Ltd (ASX: HLS) share price trades at a P/E of 19.0 with a 1.9% dividend yield.
All in all, I think the Ramsay Health Care share price is probably neither cheap nor overvalued right now. Despite some strong tailwinds, the healthcare industry could easily come under pressure in 2020. I personally don’t think I’ll be buying in unless this ASX health care share falls further.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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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