Healthscope Limited (ASX:HSO), a AUDA$3.66B mid-cap, is a healthcare company operating in an industry, which has experienced tailwinds from issues such as higher demand driven by an aging population and the increasing prevalence of diseases and comorbidities. Healthcare analysts are forecasting for the entire industry, a fairly unexciting growth rate of 8.20% in the upcoming year , and an optimistic near-term growth of 11.32% over the next couple of years. However, this rate came in below the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Healthscope is lagging or leading in the industry. View our latest analysis for Healthscope
What’s the catalyst for Healthscope’s sector growth?
Providers that are finding it harder to profit from further cost and operational efficiencies after picking the low-hanging fruit are beginning to turn their attention to more transformative initiatives to bend the cost curve. Over the past year, the industry saw growth of 8.52%, beating the Australian market growth of 6.88%. Healthscope lags the pack with its negative growth rate of -9.24% over the past year, which indicates the company will be growing at a slower pace than its healthcare provider peers. However, in the upcoming year, Healthscope is expected to deliver growth in-line with its industry peers, at a growth rate of 8.20%.
Is Healthscope and the sector relatively cheap?
The healthcare sector’s PE is currently hovering around 24x, above the broader Australian stock market PE of 18x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 11.05% on equities compared to the market’s 11.86%. On the stock-level, Healthscope is trading at a PE ratio of 23x, which is relatively in-line with the average healthcare provider stock. In terms of returns, Healthscope generated 6.86% in the past year, which is 4% below the healthcare provider sector.
What this means for you:
Are you a shareholder? Healthscope’s future growth prospect aligns with that of the broader market and it is trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Healthscope as part of your portfolio. However, if you’re relatively concentrated in healthcare, you may want to value Healthscope based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Healthscope has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company, given that it is trading relatively in-line with its peers. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time.