STOCK ANALYSIS: Healthscope
ASX CODE: HSO
A stock recently came into my radar: Healthscope (ASX: HSO) and I am heavily considering purchasing this stock as I believe that it is undervalued.
Background: According to their website “Healthscope is Australia's second largest private hospital operator and a leading provider of pathology services in New Zealand, Malaysia and Singapore. Healthscope's business also includes more than 57 medical centres across Australia.”
Healthscope is only second to Ramsay and it is the comparison between the two companies that highlights why I think Healthscope is undervalued.
In October 2016, Healthscope released a media statement “announced a weaker quarter of operations and projected a flat full-year result if conditions such as those experienced for the most recent quarter continued for the remaining nine months of the financial year” (The Australian). Investors dumped Healthscope shares and now in December, it has reached a new low.
I think news sites such as“The Australian” and “Motley Fool” has posted a few good articles on why Healthscope is a good buy. Here is a summary of why I think its good:
- HSO’s high price in 2016 was $3.17 compared with November 2nd price of$2.16 close, a fall of over 30 per cent and a price not far from the $2.10 the company listed at in July 2014.
- It’s currently trading at only 19.3x FY17’s estimated earnings, compared to Ramsay which is trading at 26x FY17’s estimated earnings.
- The S&P/ASX 200 Health Care (Index: ^AXHJ) (ASX: XHJ) has been one of the best performing indexes over the last five years, growing 141% in that time. The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has only risen 27% in that time.
- Most elective surgeries are done at private hospitals belonging to operators like Healthscope and Ramsay Health Care Limited (ASX: RHC).The increasing reliance on the private sector should see more patients go through Healthscope’s doors. In fact there has been a 42% decrease in the number of public hospital beds per 1,000 people aged over 65 since 1994.
- The number of people over 65 and over 85 is expected to double over the next 20 years. This is going to increase the amount of people that may visit Healthscope’s hospitals by a significant amount.
What do you think? Is this a good buy?