In November 2014, the Coalition government offloaded Medibank Private Ltd (ASX: MPL) for around $5.7 billion – far more than was originally expected – in what was the most highly anticipated public float since that of Telstra Corporation Ltd.
Indeed, there was plenty of debate regarding the attractiveness of the business in the lead-up to the initial public offering, or the IPO. While some investors pointed out how successful the government's previous divestments had become – think Commonwealth Bank of Australia and CSL Limited – others were quick to question the company's lofty valuation and high business costs.
In what was a heavily oversubscribed float, early mum and dad investors were lucky enough to buy their shares at $2.00 each while institutions paid a higher $2.15. The shares quickly rose to a high of $2.59, before falling below that $2 level not long after.
With that in mind, it's worth taking a look at what an initial $10,000 commitment to Medibank Private would look like today. I've based the figures on the stock's record high, record low and current price while, for simplicity's sake, I have also assumed that investors received 100% of the shares they subscribed for (larger applications were scaled back to meet the high level of demand during the IPO).
It should be noted that the success of an investment should be measured over the course of years, not months. Still, investors who bought into the November 2014 IPO are sitting pretty on their investment, despite a brief scare between February and August over which time the shares actually fell into negative territory.
Although Medibank Private has certainly made progress in its endeavour to lower costs and improve overall efficiencies, however, it is still a somewhat expensive investment. At its closing price of $2.41 on Friday, the shares were trading on a trailing price-earnings ratio (P/E ratio) of 23.2x, which compares to a 19x P/E ratio for rival NIB Holdings Limited (ASX: NHF).
Given its size, it could be argued that NIB Holdings has greater growth potential than Medibank Private and, at today's prices, could certainly be the better buy.
