One of 2013's most outstanding sharemarket performers was private hospital operator Ramsay Health Care Limited (ASX: RHC). The company's share price has increased a massive 53% in the last 12 months, compared to the 11% rise of the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) and over the last two years Ramsay Health Care's market capitalisation has more than doubled, up 123%.
The share price growth has been driven by an incredible record of increasing shareholder returns, with core earnings-per-share (EPS) growing at a compounded annual growth rate of 17.2% since 2010. Dividends have grown by almost as much, from $0.435 in 2010 to $0.705 in 2013.
However, a significant driver of any share price increase is favourable shareholder expectations about a company's future. For Ramsay this expectation is clearly very high given the premium price relative to forecast earnings. Given the company's history of growth over the last four years this is not undeserved, but will Ramsay be able to meet investors' high expectations and beat the market in 2014?
The company's continued growth strategy has several prongs: organic growth; driven by demographics and continuous business improvement, brownfield developments, new partnerships with public and private operators, and exploring further acquisitions.
Australia currently accounts for 80% of the company's operating revenues which Ramsay is looking to reduce by expanding throughout Asia.
The first phase of this has already started through the company's joint venture with Malaysia based Sime Darby and Ramsay's aim is to build a portfolio of hospitals in Southeast Asia to cater to its growing middle class.
Foolish takeaway
Ramsay certainly has the potential to continue its well managed winning ways in 2014, having streaked ahead of other healthcare operators like Virtus Health Ltd (ASX: VRT) in 2013.
Despite this, prospective investors should be very cautious. At such a high earnings multiple there is risk of a big fall if growth slows or something unexpected happens. Cochlear Limited's (ASX: COH) 2011 product recall and subsequent share price fall is a case in point.
