Ramsay Health Care Limited (ASX: RHC) is a top private hospital operator and one of Australia's leading healthcare stocks. Lately, I have been reading up on the company with the goal of understanding whether there is a case to invest in it at current prices.
At first glance, there is plenty not to like about Ramsay at the moment. Its currently trading at a high PE ratio of 30 and its former CEO & CFO sold off a large portion of their shares in the company last year (it's never a good look when senior management sell their shares).
As if that was not enough, top fund manager Charlie Aitken of Aitken Investment Management has gone on record stating that his fund is shorting the stock. Despite that, successful investing requires independent and at times contrarian thinking.
Here is why I'm tempted to invest in Ramsay:
- Long term trends. I don't know whether Ramsay's share price will perform well in 2018. I's share price was flat in 2017 and that could persist in the short term. What I do know is that the Australian population is growing (mainly through migration), it is ageing and there is increasing pressure on public healthcare facilities. These trends develop slowly but surely and Ramsay, as Australia's largest operator of private hospitals, is well placed to take advantage of them.
- Defensive stock. In a fast-changing world with high levels of consumer debt smashing retail spending, what we can be reasonably sure of is that we will still need good healthcare. Ramsay's earnings as such, are relatively recession proof.
- Global footprint. Ramsay operates over 220 hospitals and day surgery facilities across Australia, France, the United Kingdom, Indonesia and Malaysia. That comes with advantages such as geographic diversification and currency hedging against the Australian dollar compared to its competitor Healthscope Ltd (ASX: HSO), which largely operates in the local market.
- Growth. Management expect 8%-10% FY 18 earnings growth and I think they can achieve that. I can live with a high PE ratio if there is sufficient earnings growth to support that.
Overall, I think Ramsay has great long-term prospects and even though it may come at a premium, it could be a great investment over time.
