Search ASX code:
Generic filters

Are Ramsay Health Care (ASX:RHC) shares a wise COVID-19 recovery play?

The Ramsay Health Care Limited (ASX: RHC) share price has fluctuated between $60 and $70 since April this year.

RHC share price chart

Source: Rask Media 1-year RHC share price chart

Given the nature of the business and the effects of COVID-19, Ramsay shares are still sitting at an 18% discount to where they were at the start of the year. Is now a good time to buy?

Background

Ramsay Health Care is the largest private hospital operator in Australia, with operations also in Scandinavia, France and a major presence in the UK. Ramsay has been operating for more than 50 years, having been started by Paul Ramsay AO in 1964. The company has 480 facilities across 11 countries with 77,000 staff, annually treating around 8.5 million patients.

A slowdown in elective surgery globally has seen the company face a major roadblock this year, resulting in a 43% decrease in net profit in FY20 and a cancelled dividend for the year.

Around 60% of Ramsay’s EBIT comes from its Asia Pacific segment, so as long as our own economy continues to show signs of improvement, it seems likely that the company will be able to get by in the meantime despite the conditions overseas.

The potential vaccines are looking promising, but a full recovery in earnings may take a significant amount of time given the lag between a rolled out vaccine and elective surgery.

Are Ramsay shares good value?

I find it interesting that despite the uncertain outlook for Ramsay, its valuation is one that still reflects a growth stock with a trailing P/E ratio of 41x. Even forward-looking, I think the valuation appears stretched with fairly low expected earnings growth for FY21.

So, from a value perspective, I don’t think Ramsay shares are cheap, especially when you look at some of the other COVID-19 affected sectors here in Australia that are trading on much lower valuations, such as retail. I would argue some Aussie retailers have a better outlook than Ramsay in at least the short-term, but trade on P/E multiples of around 20 with much higher expected earnings growth within the next couple of years.

Summary

I can partially see the appeal in holding Ramsay shares to take advantage of the general re-opening of the global economy. But I also think there are some cheaper COVID-19 affected sectors on the ASX that have some decent growth potential as well.

For some more share ideas, click here to read: 3 ASX growth shares to watch closely in December.

1 ASX Stock to Buy RIGHT NOW...

Rask's top analyst has just identified his #1 'MedTech' stock idea for 2021 and beyond. This is a SERIOUS growth stock.

CLICK HERE to get the ASX stock ticker code, 3,500-word analysis and ASX founder interview!

Our expert investment reports are 100% free.

Simply click here or enter your email below. We'll send you the report.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Rask's top analyst has just identified his #1 'MedTech' stock idea for 2021 and beyond. This is a SERIOUS growth stock.

CLICK HERE to get the ASX stock ticker code, 3,500-word analysis and ASX founder interview!

Our expert investment reports are 100% free.

Simply click here or the button below. We'll email you the report.

At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

Keep reading: