The plunging share price of Australia's largest health insurance business, Medibank Private Ltd (ASX: MPL), could be making shareholders nervous with the stock now trading at its lowest level since 9 December. The stock, which soared as high as $2.59 in February, has been stuck in a downward spiral since the release of the group's first earnings report as a publicly-listed company.
The company reported an improvement in management costs and overall productivity and confirmed that it was still on track to meet full-year earnings guidance. While its results were impressive; they clearly weren't enough to justify the high premium that the shares commanded.
After having generated an enormous level of excitement in its first few months as a public company (and solid paper profits for those investors who bought in early), the stock has since fallen away. Since reaching that high price, Medibank Private's shares have dropped 15.8% to just $2.18, while they've retreated an alarming 7.6% since Thursday last week.
Unbelievably, that puts it below their opening price of $2.22 on the day they first began trading, while they're sitting less than 5% higher than their all-time low of $2.08 per share, which was recorded on the second day of trade.
Should you buy Medibank? There's a lot to like about Medibank. To begin with, it is Australia's largest health insurance business with the capability of improving earnings growth through cost cutting and various efficiency improvement initiatives.
Meanwhile, many investors have also purchased shares in the belief that it was capable of delivering similar returns to various other ex-government owned businesses such as Commonwealth Bank of Australia (ASX: CBA) and CSL Limited (ASX: CSL).
While there is no questioning the quality of the company; the high premium on which the shares are trading is still alarming.
Investors wanting to gain exposure to the insurance sector would be wise to either wait for Medibank Private's shares to pull back in price even further, or alternatively consider purchasing shares in its rival NIB Holdings Limited (ASX: NHF). NIB Holdings arguably has greater growth potential and is currently trading at an even more compelling price than Medibank.
