Directors keep buying beaten-up Sonic Healthcare shares. Should you?

Is this a healthy opportunity?

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The Sonic Healthcare Ltd (ASX: SHL) share price dropped to a new 52-week low today of $23.81. When directors decide to buy shares, it can be a signal for other investors to buy too. There has been yet another director investment after the company's disappointing earnings update.

Earlier this week, my colleague Kate O'Brien reported that directors had bought Sonic Healthcare shares.

Earnings update recap

Sonic Healthcare disclosed that it's now expecting to generate earnings before interest, tax, depreciation and amortisation (EBITDA) of $1.6 billion and $8.9 billion of revenue in FY24. That compares to previous EBITDA guidance of between $1.7 billion and $1.8 billion.

Organic revenue continued to be strong, with 6% growth for the four months to 30 April 2024, after a 6% increase in the first half of FY24.

However, profit growth has been lower than expected, partly due to inflationary pressures on the business exacerbated by currency exchange headwinds. Profit margin improvements have been delayed, though this will "contribute to further earnings growth" in FY25. The company expects inflation pressures to ease going forward.

After providing this update and seeing the Sonic Healthcare share price reaction, directors decided to buy.

New director investment

Sonic announced today that director Christine Bennett has bought 1,000 more Sonic Healthcare shares on the market at a price of $24.01 on 29 May 2024. This suggests the total investment was worth approximately $24,000.

This brings Bennett's total ownership of the ASX healthcare share to 5,100 Sonic Healthcare shares. That means her holding increased by around 25%, which is a sizeable increase.

There are many reasons why a director may decide to sell their shares: a tax bill, buying a property, a divorce and so on. But, there's typically only one reason a leadership figure buys shares on the market: they think it's good value.

Is the Sonic Healthcare share price a buy?

I think it is – I bought Sonic Healthcare shares recently and it's even cheaper now.

There are several positives that could support the ASX healthcare share.

First, it has made several acquisitions that can help boost revenue and profit in the future, particularly with acquisitions in Germany and Switzerland.

Second, it has invested in businesses that can help diagnose patients, namely AI and microbiome testing

Third, the business is still seeing positive organic revenue growth. Once cost inflation reduces, Sonic's operating profit could continue to increase at an adequate rate to reinvigorate the market about the company.

Sonic Healthcare is already a sizeable position in my portfolio, so I'm not planning to buy shares imminently. But if I didn't own shares, I'd be using this time to invest.

Motley Fool contributor Tristan Harrison has positions in Sonic Healthcare. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare. 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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