The Sonic Healthcare Limited (ASX: SHL) share price has dropped more than 6% in the past month to trade around $22.67, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up just over 1%.
Competitor Primary Health Care Limited (ASX: PRY) has also seen its share price sink, losing 4.8% over the past month. Sonic is focused on providing pathology, radiology, medical clinics and diagnostic imaging services in Australia, New Zealand, Europe and the US.
Sonic's shares are trading at a market premium, but that is usually attributed to the higher quality of the business and management, its earnings growth, defensive qualities and tailwinds in the healthcare sector. Over the past decade, Sonic has delivered an average annual total shareholder return of 8.3%, and 16.8% over the past five years says Commsec.
According to calculations based on last year's earnings and the current price, Sonic sports a P/E ratio of 20.6x, with Primary on a P/E ratio of 20x. Both companies pay similar dividend yields of around 3%, with Sonic's partly franked.
Earnings per share (EPS) for Sonic in the 2017 financial year (FY2017) are expected to be similar to FY2016, the share price is unlikely to move much higher in the short term. FY2018 might be different, with analysts expecting a decent rise in EPS on the back of higher revenues.
Sonic is a good candidate as a base stock in a diversified portfolio. Investors may want to wait for a cheaper price before jumping in or consider the stocks below.
