The graph below shows the relative share price performance of hospital operators Healthscope Ltd (ASX: HSO) and Ramsay Health Care Limited (ASX: RHC) over the past year. There are some interesting points that this graph highlights.
Source: Google Finance
Firstly, the performance of both companies has been remarkably similar over this period even with the above average volatility being experienced in the market. In addition to this, both companies have easily outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO), and both share prices have remained in positive territory for most of the year.
The question then needs to be asked – are you better off owning one stock over the other if both have performed so similarly over the past year?
In my mind there is a clear answer, but first, here is some background information about each company that could help to determine the answer.
Healthscope Ltd
Healthscope relisted on the market in July 2014 after being acquired by private equity in 2010. The company has a market capitalisation of nearly $4.7 billion and operates in three distinct segments, namely hospitals, pathology and medical centres.
Healthscope's FY15 results were marginally above its prospectus forecast with revenues increasing by 4.8% and operating EBIT increasing by 9.4% from FY14. Earnings per share were 8.6 cents and the company declared an unfranked full year dividend of 7 cents per share.
The hospital segment contributed over 80% of the group total earnings in FY15 and is likely to be the biggest driver of growth for the company moving forward. Healthscope has a strong pipeline of new hospital construction projects that will deliver an additional 980 new beds and 50 new theatres over the next three years.
Looking forward, the company has not provided any specific guidance for FY16 but believes the completion of several large projects during the next 12 months will provide the foundation for faster growth from FY17 onwards. Therefore, investors should not expect more than low-single digit growth in earnings over the coming year.
Ramsay Health Care Limited
Ramsay is Australia's largest private hospital operator and is ranked in the top five worldwide. The company has a market capitalisation of more than $12 billion and has 212 hospitals across five countries.
Ramsay delivered solid growth in FY15 with revenues, core earnings per share and full year dividends increasing by 49.8%, 20% and 18.8% respectively.
Growth was positive in all geographic markets and especially strong in France thanks to a number of strategic acquisitions. The company is now the leading hospital operator in France with further acquisitions likely to take place over the next couple of years.
Like Healthscope, Ramsay also has a strong pipeline of new hospital construction underway that should see an additional 754 beds and 41 theatres by FY16.
Management has provided guidance of 12-14% earnings per share growth in FY16 barring any unforseen circumstances.
Valuation
At the current $2.60 share price for Healthscope, the shares are trading at around 30x FY15 earnings with a unfranked dividend yield of 2.7%.
At $59.20, Ramsay is also trading at around 30x FY15 earnings with a fully franked dividend yield of 1.7% (grossed up to 2.4%).
Verdict
Although both companies are trading at almost identical valuations, Ramsay is the clear winner for me. Sure, I'm a shareholder of Ramsay but that is not the reason why I think it is a better investment than Healthscope.
Firstly, the graph below demonstrates the extraordinary growth and consistent track record of Ramsay over a very long period of time and this is unfortunately lacking from Healthscope. 
Source : Ramsay FY15 Presentation
Secondly, the growth outlook for Ramsay is far superior to Healthscope and that is especially the case over the next financial year.
Finally, Ramsay has exposure to far larger markets than Healthscope. It operates successfully in a number of countries and this geographic diversification will increase the growth opportunities available to the company.
